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The UK Government has recently announced significant changes to the inheritance tax rules that impact family businesses, farmers and pensions.
From April 2027, pension pots may become subject to Inheritance Tax, which is changing the way people think about their retirement savings.
Previously, many individuals avoided spending their pensions because of the Inheritance Tax benefits of retaining the funds. However, this upcoming change is encouraging more people to either spend or gift their pensions (or other assets) during their lifetime to avoid leaving a large tax bill on their death.
The Risks of Making Lifetime Gifts
While making gifts during your lifetime can be a good way to reduce the size of your estate and lower your potential inheritance tax bill it is important to be aware that some gifts can have unintended consequences.
There are different rules depending on the type of gift you make and certain exemptions are available to fully maximise your estate planning.
Some gifts might not be taxable right away but could be subject to tax later if you fail to survive seven years. You also must ensure you do not retain a benefit from the asset you give away else you could become foul of the gift with reservation of benefit rules.
Pre-Nuptial Agreements
A pre-nuptial agreement is a legal contract made before marriage or civil partnership that outlines how assets will be divided in the event of a divorce.
Pre-nuptial agreements can ensure that any gifted assets remain with the intended recipients, thus protecting the gifted funds from being shared in a future divorce settlement.
It can be a useful tool to protect assets and monies that have been gifted.
Trusts
Trusts are an effective way to gift assets while retaining control and protecting them from risks like divorce, bankruptcy, or disputes between beneficiaries. It can also be a useful way to make gifts to minors such as grandchildren.
Contact us
Here at George Green LLP, we have a dedicated and experienced Private Client team that can help you with estate planning. Managing your estate using our services can help you understand how gifts will impact your Inheritance Tax position and provide certainty for clients that gifts are structured in the most tax-efficient and protective way.
If you would like to discuss your estate planning please contact the Private Client team at George Green LLP on 01384 410410 or complete our online enquiry form.
If you would like to discuss pre-nuptial agreements, please contact our Family team at George Green LLP.