Succession planning post Budget

In October 2024 the budget introduced major changes to inheritance tax (IHT) and the taxation of pensions on death. In this article, we share an overview of the key things to consider when succession planning following the recent changes.

For a recap on the Budget announcements please view our article.

Proposed pension changes

Prior to the recent budget announcement, it was considered sound IHT planning to draw limited, if any, retirement benefits in your lifetime and leave your pension savings to your chosen beneficiaries free of IHT.

From 6 April 2027 most undrawn pension funds and death benefits will be included in a person's estate for inheritance tax purposes.

Therefore, tax may be payable on these assets at 40%.

These changes may mean that you would like to reconsider:

•   How the pension funds are invested and/or

•   Whether to Increase the drawings with the intention to spend or gift any excess funds.

These announcements mean that now more than ever, individuals, business owners and families must carefully and proactively plan how and when to transfer wealth to the next generation.

Essentially when considering passing on wealth the key questions you should ask yourself are:

• Who you want to benefit?

• What assets could be gifted?

• Whether you want to give these directly to your chosen beneficiary or retain an element of control over the asset?

• How much wealth you want to retain?

Options to be considered:

• Lifetime gifts – giving cash or assets to the next generation during your lifetime remains exempt from IHT providing you survive 7 years. However. If gifting an asset, other taxes such as capital gains should be considered before making the gift and therefore tax advice is essential.

• Transfers to Trust - gifting assets to a trust rather than directly to another individual may be appealing for individuals who would like to make a gift now but consider the intended beneficiary to be too young to receive a lump sum or valuable asset. Individuals gifting assets into trust still need to survive seven years for the gift to be IHT-free and advice should be taken from a suitably qualified professional before this step is taken.

• Insurance - life insurance should be considered as a means to raise funds to pay IHT should an individual die before a gift becomes exempt or before any planning is undertaken. Financial advice would be required here.

Seek professional advice

Passing wealth down the generations can bring other challenges so taking professional advice from your trusted advisers is essential before taking any steps. For tailored advice, email us at: hello@finchtax.com 

Disclaimer: The information provided in this article is intended for general informational purposes only and should not be construed as specific financial, tax, or legal advice. We strongly recommend consulting with a qualified tax, IFA or legal advisor to discuss how these updates may impact your personal or business affairs.