Proposed changes to IHT from April 2027

Mark Morton takes a look at the proposed IHT changes for pensions from April 2027.

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Transcript

Hello everybody. Mark Morton here. Welcome to this Mercia podcast and the subject for today, obviously leading up to the spring statement we're not far away now, is the proposed changes to inheritance tax and pension funds. And I think quite interesting that this has not received the sort same sort of general press as the proposals for, particularly for farmers. 

A bit more of a slow burner possibly because it's April 27. I think what's really interesting as well it probably reflects the fact that a lot of private individuals who have tried to save for their. Retirement don't fully understand the mechanics of pensions, pension schemes, you know, the tax breaks or not that go along with them. 

So it may be somewhat of a slow burner. And of course, this proposal that ultimately what the government is suggesting is if you have unused pension funds, I, if you've not drawn them out and paid your income tax accordingly, then the value of that pension fund will be aggregated with your if we call it free estate, but your more general estate. 

From April 27. What I'm trying to explain to my father is of course I need to kill him in the next two years because that's my money. He's not overly keen on this. The slightly worrying part is that my children have clicked onto this point as well. So I'm in fear for my life. And interestingly, my children have put this proposal to me on a planning point. 

They say I need to buy a company van quick before April. That will save some tax. Low benefit in kind, but what I then need to do is crash it whilst at work so that my death in service kicks in which may also be brought into these rules, but before April 27, no. I would suggest that if these podcasts continue, they will not continue any more than the next two years. 

What I've tried to say to them of course, is that one of the answers to this may be, you know, two years is a long time in politics. There is another election coming in 2029. If we get that far and we at the moment, you start to do wonder whether we are, we will get that far, but there is another election. 

In 2029, and you may take the view if you are somewhat younger, that actually there is a clear political dividing line on this point. It would not be beyond the realm of possibility where a different politician said, actually I'm not keen on this idea. I'll bin it. You know, so there is that view on life. 

It is somewhat age dependent. Of course the fundamental sort of leaving aside mechanical issue of. Pension scheme trustees talking to executors and sorting it all out. The extra IHT bill on all your 37 different pension pots you may have within six months of death or pay interest accordingly. 

That is problematic mechanically. But of course, the other thing then becomes what happens if your pension fund is actually a commercial property and you live off the rent? You know, you come back a little bit to the issue with farmers. Asset rich may be cash poor and that leads to maybe insurance products. 

But of course, if you're already 87 trying to take out an insurance product to cover your death, maybe you know, may cost you more than the IHT involved if you're not careful. It's a really problematic point, and I have to say personally, my objection to this, if that's the right expression in a general sense, is that it's retrospective. 

You know, you put your money into a pension scheme, it's not easy to get it out. And on one hand, the state has encouraged you to say by giving you tax relief on the pension fund and then hit you with, you know, on ahead with a big stick. But that is a retrospective change for a lot of people. If you merely said actually, any contributions from today? 

Go into a pot, which is not IHT relatable. I think that's a bit of a different matter. The other consequences economically, of course, you know, again, if you, there's an element of the farmers thing here. This is almost about now short-termism. What is the longer term consequence of this? Potentially what it means is what I've saved will not necessarily as much of it pass on to my children, which means they're that bit poorer. 

Which means they are able to put less money into the economy. What you've done is taken money and given it to the government, who will no doubt spend it extremely wisely on be careful what I say here, but on whatever policy they choose, including public service, you know, pay rises, pensions, and whatever else. 

So it is a very, I think, short term policy. The other interesting thing, it doesn't generally affect public service pensions. Because public service pensions would generally be, and they said, mine is payable to me on my death. I think my wife gets 50% of it. And when she dies, you know, it stops like the state pension. 

There's not a fund and therefore there's not a fund value to go in your estate. So it's a very particular change. And then part of a set of changes, which what really bothers me is what message you're sending to the. Own a managed business to get up, work hard when your overheads have just gone up. Aspire to grow a business and then cut your business asset disposal relief and encourage you to save for your retirement and then, you know, whack you on the head with a big IHT stick. 

I do worry about the aspirational lack of, and the message these policies send longer term. But anyway spring forecast is coming, so no doubt it will explain everything to us. And there'll be massive changes of policy to acknowledge that some of these ideas were not great. But yes. Anyway, our spring forecast will. 

Cover all of those. And also the tax cards. A great product to promote your business year long will have all the up-to-date rates for the new tax year within them. Take care everybody.