Inheritance Tax Allowance Loss Set to Quadruple for UK Families by 2030
Thousands of additional UK families are poised to lose their inheritance tax allowances under policies implemented by the Labour Party government, with the number of affected estates projected to quadruple by the conclusion of this decade. According to recent analysis, this significant increase stems from changes to tax regulations that will bring pension savings into the inheritance tax framework starting in April 2027.
Projected Impact on Estates and Thresholds
Wealth management firm Quilter conducted the analysis, revealing that more than 16,000 estates are anticipated to be valued at over £2 million by the 2030-31 fiscal year. At this threshold, the £175,000 residence nil rate band will begin to be gradually withdrawn. Chancellor Rachel Reeves's tax adjustments, which include incorporating retirement savings into the inheritance tax regime, are expected to push estates currently valued at £900,000 or more above the £2 million mark by 2027-28.
Shaun Moore of Quilter commented: "Many estates are likely to be hit by the double whammy of pensions being brought into scope for inheritance tax and frozen tax allowances. This is a tax that will increasingly impact estates, with the number caught out expected to rise significantly."
Financial Implications and Expert Recommendations
The financial consequences are substantial. For instance, Sean McCann from insurer NFU Mutual illustrated that a £2 million estate belonging to a single individual with a £500,000 pension currently faces an inheritance tax bill of £600,000. However, from April next year, this bill is projected to surge to £870,000, highlighting the urgent need for strategic financial planning.
David Little of wealth manager Evelyn emphasized: "Advance planning is essential when looking to reduce the impact of inheritance tax. Making lifetime gifts, alongside the natural spending of wealth, and making full use of available allowances can all play an important role. In certain situations, death-bed gifting can also be valuable."
Experts advise that individuals will need to meticulously manage their inheritance tax liabilities as a result of these changes. While pensions were traditionally the last resource tapped during retirement drawdown, they may now become the first to utilize in order to mitigate tax burdens.
