Nearly a quarter of people said they would gift their pension tax-free cash to loved ones to reduce their inheritance tax liability, ahead of incoming changes next April which will see the inclusion of defined contribution pensions in estates for IHT purposes.
The findings from Hargreaves Lansdown’s latest research show the major impact the changes are having on retirement planning.
Just over a fifth (22%) of people said they would draw an income from their pension and use allowances to gift to loved ones. The same number said they would still gift but would use assets outside of their pension to do it.
Additionally, one in five (21%) said they would spend their assets to reduce the value of their estate.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “Before the change was announced, many people planned to spend down their other assets first and leave their pension for as long as they could, so it could be passed on to loved ones, free of inheritance tax.
“The change in the rules has since prompted people to think again and assess what can be done to reduce the value of the estate to save their family a tax bill.
“It’s understandable why people would consider gifting to loved ones as a means of reducing the value of their estate. Gifting to loved ones while you are still alive not only potentially saves them a tax bill but can also help them to meet their financial goals that bit earlier.”
However, Morrissey said it’s important not to give away too much too quickly, which risks potentially running short of money further down the line.
“The upcoming changes are going to have an enormous impact on retirement planning, and it’s important to understand the ramifications before acting. For instance, there are several different gifting allowances that can be used to reduce a potential inheritance tax bill, but they can be complex. These are major decisions and it is a good idea to take financial advice,” she added.
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