SUMMER BUDGET: INHERITANCE TAX PERKS, BUT HIGHEST EARNERS SET TO BE HIT BY CHANGES TO PENSION TAX RELIEF
“It is excellent news for millions that the inheritance tax threshold has effectively been raised to £1m for couples who are homeowners, with the policy coming into full effect by April 2020.
“The inheritance tax personal threshold has been pegged at £325,000 since 2009, with an average 26%¹ rise in the property market in the meantime pushing many people – perhaps unwittingly – into larger IHT bills. There are, however, steps people can take to mitigate their potential IHT liability above the new allowances – including putting money into tax-efficient trusts, and gifting to charities and/or loved ones.
“Even at the new eventual higher threshold of £1m, one in ten UK households are sitting on assets totalling at least that amount², but they could at least now see their inheritance tax bill greatly reduced. Inter-generational wealth transfer is key – given the increased challenges the younger generation will face to fund their own retirement, many will be relying on gifts made through their inheritance.
“Those people who already have plans in place for passing on their assets should now be reviewing these plans in the light of the changes, including potentially amending their wills.”
Pensions tax relief restriction
“From a future planning perspective, the other major announcement of note was the restriction of pensions tax relief for those with income in excess of £150,000, meaning higher-earners will no longer receive some of the tax advantages around pensions that they previously enjoyed.
“While a consultation period will take place to determine a wider reform of pensions tax relief, the fact is that over £50bn is saved by taxpayers via tax relief on pensions, more than total government expenditure on defence³. On the flipside, tax relief encourages savers to build a healthier personal pension pot, which ought to mitigate the State’s financial burden for those in retirement.
“The area of legally and safely mitigating one’s tax bill is complex, and people should always seek financial advice as to how to plan their finances accordingly.”