Strategies for safeguarding your pension from Labour's inheritance tax grab
Stay Ahead of the Tax Game: Boom in Surplus Income Gifting to Escape Inheritance Tax
Gearing up for the looming inheritance tax (IHT) hikes and changes starting April 2027, an underused strategy is making a great comeback: surplus income gifting. A new study by Quilter reveals that just 1,490 estates are currently taking advantage of this method to keep IHT liabilities in check. But that's about to change.
With the upcoming revisions in pension tax, the IHT net will ensnare unused pension savings, increasing the effective tax rate for beneficiaries. This new tax burden coupled with income tax on pension withdrawals may send taxpayers scrambling for strategies to lighten their IHT load. And surplus income gifting could be just the ticket.
What is this exemption all about? Gifts made from surplus income, as opposed to capital, can be exempt from IHT, even if the donor kicks the bucket within seven years of the transfers. But there's a catch: the regularity of the payments must be met, and clear documentation is required to prove the transfers are indeed surplus, not impacting the donor's standard of living.
As the IHT landscape evolves, the use of this underdeveloped exemption is expected to skyrocket. Rachael Griffin, tax and financial planning expert at Quilter, sums it up, "With just 1,490 estates making use of this exemption in the last three years, it's high time people discovered this viable IHT relief. This relief is incredibly beneficial because it triggers immediately, unlike most other gifts which necessitate a seven-year wait after the £3,000 annual exemption."
However, maintaining meticulous records is of utmost importance. The HMRC demands transparent documentation proving gifts were made from surplus income and not at the cost of the donor's lifestyle. Seeking financial advice can help ensure compliance and maximize the benefits of this usually neglected exemption.
In a nutshell, the looming tax changes and financial planning demands will likely spark a surge in the utilization of surplus income gifting as a tactic to combat escalating IHT liabilities following the 2027 updates. Don't get caught in the IHT trap. Start exploring this intelligent strategy now.
- As the IHT landscape evolves, individuals may find it advantageous to seek financial advice on utilizing surplus income gifting to combat escalating IHT liabilities following the 2027 updates.
- With the upcoming revisions in pension tax and the increased IHT net, seeking financial advice on surplus income gifting could be pivotal in minimizing the tax burden for beneficiaries, especially when it comes to unused pension savings.
- In light of the expected boom in surplus income gifting and the imminent changes in the economy, it's crucial for personal-finance management to consider this often overlooked strategy as part of a comprehensive financial plan.
