Pensioners have been issued a warning and have been urged to act ahead of a major HMRC tax change. The warning comes from the pension experts from Spencer Churchill Claims Advice, who say thousands of older Brits risk facing major financial consequences over the coming few years. This is due to the Inheritance Tax (IHT) changes first announced in the Autumn Budget last year.
From April 6, 2027, pensions will be included in your estate and subject to tax for the first time. Under the current laws, you need to pay 40% Inheritance Tax on your "estate" - so your property, money and possessions - that you pass on after you die - but only if you are leaving more than £325,000 behind.
At the time, the government said those impacted by the changes would have estates worth over £2million. This is because the £175,000 residence nil rate band – which is the allowance for passing the family home on to direct descendants – starts to be tapered down until it disappears entirely. According to government estimates, the change will raise almost £1.5billion by 2030.
Due to this change, the pensions firm says thousands of UK households are now reassessing their pension and estate planning strategies ahead of the change. This is because there is currently "uncertainty" about how the new tax will be applied, and Brits are taking "pre-emptive steps" to minimise their tax burden.
One of these measures is to withdraw from their pension pots early; however, experts warn that this could trigger higher income tax bills and reduced pension security later in life. A spokesperson for the firm said: "Many people are understandably worried about how inheritance tax on pensions will be implemented, and some are looking to access their funds early before the changes take effect. However, withdrawing a large lump sum could push retirees into a higher tax bracket, leading to an unnecessary tax hit. At the same time, drawing down too much too soon risks depleting savings, leaving individuals struggling to fund their later years.".
Brits are being urged to take a measured approach to their pension plans with the spokesperson adding: "A knee-jerk reaction to changing pension rules could do more harm than good. Instead of making hasty withdrawals, households should carefully plan their estate strategy to reduce inheritance tax liability while ensuring they retain enough pension savings for retirement.".
The pension experts say that overall there should be three things you ned to consider before you touch your savingss, and these include:. As the 2027 deadline approaches, financial experts are urging pension holders to take action now to ensure they "maximise their retirement savings while mitigating unnecessary tax costs.".
