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LTA removal prompting IHT planning?

Journalist: Samantha Downes, Freelance and Pumpkin Pensions

ended 05. July 2023

Life without the Lifetime Allowance: Nearly a fifth of over 55s plan to pass their Tax-Free Cash to loved ones to avoid IHT. Following the removal of the lifetime allowance (LTA) earlier this year, new research1 from Standard Life, part of Phoenix Group, reveals almost a fifth (18%) of over 55s do not plan to access their tax-free pension cash, so that they can pass on more wealth to loved ones without incurring inheritance tax (IHT) charges.

Is this the professional's experience? Or are other things going on following the removal of the LTA that are worth noting.

Any behavioural changes?

 

 

3 responses from the Newspage community

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Daniel Wiltshire
Actuary & IFA at Wiltshire Wealth
Right now, there's a lot of confusion and inertia around pensions. With Labour pledging to re-instate the LTA, there's little confidence that the recent changes will last. Increasingly pensions are being used as vehicles for avoiding inheritance tax - which no doubt politicians will also be aware of.
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Joshua Gerstler
Chartered Financial Planner at The Orchard Practice
"People planning on using this approach need to be careful. Although their beneficiaries will have no Inheritance Tax to pay, if death occurs after age 75 then their beneficiaries will pay Income Tax on the money at either 0%, 20%, 40% or 45% depending on their marginal rate. If you are in good health, a better option might be to take the Tax Free Cash and gift it to your children, and if you survive for seven years then there should be neither any Inheritance Tax to pay nor Income Tax."
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Tahina Akther
Barrister and Co-Founder at Wildcat Law
We are already seeing the LTA removal impacting settlements as part of divorce proceedings. For many high net worth clients, sharing a pension that was over the LTA could be an effective way of giving something that was going to be worth less to them anyway. Increasingly we are seeing clients changing their stance and wanting to protect pension pots at all costs because the tax advantages - specifically for IHT are so great.
It only serves to highlight the disparity between married and unmarried couples in this respect. A non-married partner has no claim on their former partner's pension if they separate.