Transcript
Katie: Why have so many people built their legacy plans around their pensions? And why is that about to become a lot more complicated?
Ed: So historically, pensions have sat outside of one's estate when it comes to Inheritance Tax. And from April 2027, this is expected to change where unused pensions will sit inside your estate when it comes to Inheritance Tax.
Katie: Who’s most likely to be affected by this?
Ed: So those individuals that have, over a period of their time, built a large pension pot up. Who's kept their pension pot intact, spent their other assets, their investments, their ISAs, their cash, all that sort of stuff, but kept their pension ready to pass on, thinking that it would be Inheritance Tax free will be hugely affected by the changes.
Katie: What's the biggest misunderstanding you're seeing around this change?
Ed: I think the biggest misunderstanding is that it only affects the very wealthy. And the numbers speak for themselves. So HMRC released some figures and 38,500 estates will be paying more Inheritance Tax once these changes come in. So it's going to really change the landscape and bringing that pension inside of someone's estate for Inheritance Tax planning, along with the cash, the ISAs, will increase the value of that estate and could increase it quite considerably. So it really is going to be a big change and have a big impact on a lot of families, not just those that are seen as very wealthy.
Katie: What's the questions that people should be asking themselves now that they perhaps weren't before?
Ed: So I think the questions people need to be asking themselves is, what does my estate look like now, and what will my estate look like when these new rules come into play? So if you haven't used your pension, you know what is the true value of your estate by adding that inside. And the other one is looking at what other options do I have available to me to help mitigate that Inheritance Tax risk later down the line? And also, I think it's a time to update your legacy planning and seek some financial advice around it.
Katie: And I think that's the most important point to get across. It's not just for those who haven't planned, it's for those who have. And they need to look at their plan and see if it still holds up.
Ed: Yes, exactly. I think it's a great reason to revaluate and look at that legacy planning that you've done and see – is it still relevant in this changing world.
Katie: That's really helpful Ed. Thank you so much.