What is a Section 278 Agreement?

A Section 278 Agreement is a legal agreement between a developer and a highway authority to carry out highway works.

Labour’s 2024 Budget: Pension Changes And Inheritance Tax Implications

In the Autumn Budget of 2024, Chancellor Rachel Reeves introduced significant reforms affecting the inheritance tax (IHT) treatment of pensions, marking a departure from previous policies. These changes, set to take effect from April 6 2027, have sparked considerable debate and have substantial implications for estate planning and wealth transfer.

Inclusion of Pensions in IHT Calculations

Historically, unused pension funds were exempt from IHT, meaning that on death individuals could pass on their pension savings to beneficiaries without incurring inheritance tax. This meant that pensions were viewed as a useful tool for estate planning, and were often treated as the last resort for lifetime income provision.

However, under the new policy announced in the Autum Budget, most unused pension funds and death benefits payable from a pension will be included in the deceased’s estate for IHT purposes. This change aligns the treatment of pensions on death with other assets in an estate, subjecting them to the inheritance IHT rate of 40% on estates exceeding the nil-rate band, which remains frozen at £325,000 until 2030.

Implications for Estate Planning

Individuals would be wise to proactively review their estate planning strategies in light of these forthcoming changes, to both optimise tax efficiency and ensure that they are doing all they can to preserve their financial legacies for future generations.

For those yet to reach retirement it would be wise to review the role of pensions in their financial planning. Individuals may plan to draw primarily upon pension funds for their retirement income to reduce their taxable estate, rather than treating their pension as a tax efficient savings pot to be used if needed or otherwise passed to beneficiaries on death. This may affect other investment strategies and how much they choose to invest in their pension.

The changes will have a particular impact on those who are close to or have already reached retirement age. Wealthy individuals may have invested heavily in their pensions, far in excess of what they are likely to need in retirement, now to face 40% IHT on those funds.

Professional advice is crucial to navigate these changes effectively and to develop strategies tailored to each individual’s circumstances. There are options, even for those already in retirement.

At Wollens, we recommend engagement with our Wealth Protection team who will guide you through the various considerations and options available to you. Their approach is to consult with you together with your chosen Accountants and Financial Planners at an early stage so as to avoid siloed planning. You can be assured of detailed, tailored advice which empowers you to take control of your financial future.