The dust is settling on a truly momentous Autumn Budget and now it’s time to think about what it means for our pensions and retirement.
The major change has been the decision to bring pensions into the scope of inheritance tax (IHT) from April 2027 – a move that’s expected to land many more families with a hefty bill and people will need to plan carefully.
However, one of the other big impacts was around what wasn’t announced.
In the weeks running up to the Budget, the rumour mill ran red hot with speculation that tax-free cash was going to be cut back, and the industry saw a wave of people rushing to take it.
The change didn’t happen, and this has now left numerous people holding cash they may not need and looking at what they can do with it.
Making the wrong decision could leave them with a nasty tax charge.
This article isn’t advice. The government’s Pension Wise service can help if you’re over 50 and need guidance. You can also get personalised financial advice if you need it.
Investments can rise and fall in value, so you could get back less than you invest. Pension and tax rules can change, and any benefits depend on your circumstances. Remember, you can't usually access money in a pension until you're 55 (rising to 57 in 2028).
Did you take tax-free cash – what are your options?
If you took the money because you were nervous about the rumours and now regret it, it’s worth speaking to your provider about whether you can reverse your instruction.
Some providers will offer a cooling off period.
However, it all depends on when and how you took your tax-free cash, so it’s best to check with them as soon as possible.
If you think you can get around the issue by reinvesting the money you took back into a pension, like a Self-Invested Personal Pension (SIPP), you need to be careful not to fall foul of recycling rules. That’s because these could land you with a nasty tax charge.
Allowances and tax relief unchanged
Despite the change to the IHT treatment, pensions remain top of most people’s retirement savings shopping list.
With no change to allowances and tax relief for now, making the most of your pension is still one of the most tax-efficient ways to save.
Consider a SIPP
After maximising your workplace pension, if you haven’t already and can do, a SIPP is another great option that offers flexibility and control.
Shelter up to £60,000 each tax year, free from UK income and capital gains tax.
Get up to 45 (47% for Scottish taxpayers) tax relief on contributions until age 75.
Easily change your payments to suit your financial situation.
Make a lump sum payment, or start or increase a direct debit from as little as £25.
Find out more about opening or topping up the award-winning HL SIPP.
Use your gifting allowances
The chancellor’s decision to bring inherited pensions into the IHT regime from April 2027 means money left in a defined contribution pension after your death will be brought into your estate.
It’s expected to cost people an incredible £1.5bn in 2029/30. The government estimates it will affect 8% of estates, so it’s worth planning for.
Sensible gifts can help support younger family members at a time when you’re still around to see your family enjoy the money.
You can normally give away up to £3,000 per tax year inheritance tax free. This is known as the annual exemption. You can carry any unused annual exemption over to the next tax year. But if you don't use it in that year, it’s lost.
You can also make 'gifts out of income' free from inheritance tax.
Regular payments made out of excess income (which don't affect your standard of living) are normally exempt from IHT.
This can be a useful exemption for those wanting to contribute to a child’s investments through regular savings.
It’s important to keep records. If you decide to make regular gifts out of income as part of your normal spending, you should keep a record of your after-tax income. This will demonstrate the gifts you've made are regular and you have enough income to cover them and your usual day-to-day costs, without having to draw on your capital.
It’s also worth exploring if the small gifts exemption could help you – it’s available on top of the annual exemption.
If you give loved ones a lump sum of more than the annual gifting limits, it becomes what’s known as a ‘potentially exempt transfer’, which falls out of your estate after seven years have passed.
If you pass away within this seven-year period, the gift becomes chargeable and would then increase the overall tax bill. Your executors can claim taper relief which reduces how much tax there is to pay on the excess you’ve gifted over your available nil rate band.
This relief is available between three and seven years after the gift is made. The longer the period between the transfer and your passing, the greater the taper relief and therefore the lower the tax.
Gifting also gives you more control over how the money is given.
You could, for example, put it into an HL Junior ISA for a child under 18. That way you know the money will be tied up until they’re an adult.
It’s important not to give away more than you can afford though. You need to consider how much you’ll need to retire and other issues like long-term care before you make large gifts to loved ones.
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Our advisers can adjust your financial plan post-Budget. Understand how inheritance tax on pensions and risings capital gains tax could impact you.