News & Views

Pensions now included in inheritance tax – do you need life insurance for this purpose?

The 2024 Budget widened the scope of inheritance tax so that, from 2027, the value of any of your pension funds will be counted as part of your estate when it comes to calculating whether you have an inheritance tax (IHT) liability on death.

The inheritance tax threshold in the UK is £325,000 per person. If your estate is valued at lower than this amount, no tax will be payable. Inheritance tax is paid at 40% of the portion of the value of your estate that exceeds this threshold, however, so someone with a £425,000 estate can expect to have an IHT liability of £40,000.

Married couples – but not those in co-habiting arrangements – can pass on their allowance to their spouse or civil partner, so in effect the threshold for a married couple is £650,000.

If you think you may have an estate that exceeds £325,000 as a single person, or £650,000 as a married person, then it’s a good idea to get in touch with Moneysworth’s experienced life insurance advisers to discuss plans to ensure your loved ones aren’t hit with an unexpected and potentially significant bill when you pass away.

In addition to your pension funds, the following will all be included in your estate when it is valued for IHT purposes:

• Property
• Cars
• Investments
• All of your personal possessions
• Any gifts you have made to family members or others in the seven years prior to your death