I want to talk to you about inheritance tax as
it relates to pensioners. I'm going to start
off with some practical information about the
tax and then move on to more of an opinion piece
as I do have some opinions on this and many of
you unfortunately are not going to like them.
It's important to do the practical bit first
because I know through speaking to people via
my website that a lot of angst is created about
inheritance tax that comes often from a misunderstanding.
For example, most of the people at Chatsu are
in a couple and own a house. And once they realize
that inheritance tax won't affect them really
unless they're looking to pass on more than a
million pound, then they kind of worry less as
they don't really have them kind of assets anyway.
So let's canter through the rules. So let's run
through the common changes to how pensions are
treated for inheritance tax. Now it's the subjects
that's been framed in some pretty dramatic terms,
you know, a tax on the young or even a tax on
the dead, but reality is a bit more nuanced.
So let's explore what's happening, why it's happening
and what it could mean for you and your family.
The core issue. is a policy announced in recent
UK budgets. From April 2027 most unused pensions
and death benefits will be included in the value
of a person's estate for inheritance tax purposes.
Now this is a significant shift. For decades
a key benefit of pension savings was that for
most people they fell outside of their estate
and could be passed on to beneficiaries free
of inheritance tax. Now this new rule changes
that. The most controversial aspect of the change
is its impact on those who died before reaching
the normal pension age and for most that's currently
55 it was for me and this is set to rise to 57
in April 28. Now if someone passes away at say
40 years old the pension pop which they are legally
barred from touching could now be hit with a
40 % inheritance tax bill if their overall state
is large enough. This has led to some very strong
criticism from financial experts. They argue
it's fundamentally unfair and as one expert put
it, charging IHT on an asset you have to accrue
and are automatically enrolled into before retirement
age is abhorrent. Now the concern is that it
penalizes the families of those who had no chance
to benefit from the savings. There's also the
issue of a double tax hit. Now if a saver dies
after the age of 75 their beneficiaries already
have to pay income tax on pageant withdrawals
and for a higher rate taxpayer this could mean
an affected combined rate of well over 60 percent.
When you factor in both the incomes and the inheritance
tax that is in the government's decision to press
ahead with this despite the warnings has been
a major point of contention. So why is the government
doing this? Their position is clear. They want
to reinforce the original purpose of a pension.
Pensions are a taxed advantage saving vehicle
designed to fund your retirement. Now the generous
tax relief you receive on contributions and investment
growth is meant to incentivize you to save for
your later years, not to create a tax free vehicle
for passing on wealth to your heirs. Our treasury
spokesman has confirmed this, stating that they
want to incentivise pension savings for their
intended purpose of funded retirements, instead
of them being openly used as a vehicle to transfer
wealth. Now the government estimates that a relatively
small number of states, around 1 .5 % of total
UK deaths will be newly liable for inheritance
tax due to this change. They believe that this
measure corrects an imbalance that brings pensions
in line with other inherited assets. Now, they've
also been responsive to some concerns, for example,
by exempting death in service benefits from the
new rules. This isn't going to affect everyone.
Now, inherited tax is only levied on estates
above a certain size. The nilweight band is currently
£325 ,000 for a single person or £650 ,000 for
a married couple or civil partners. Now on top
of this there's the residence nilweight band
which can add up to £175 ,000 per person if you
leave the home direct to descendants. This means
a married couple where the home could potentially
leave up to a million pounds to their children,
completely tax free. So the key takeaway is this.
You need to understand where your personal situation
fits within these rules. If your total estate,
including your pension pot, is below these relevant
thresholds, then you've got nothing to worry
about. But if you do have significant assets,
then... These changes require you to potentially
re -evaluate your financial and estate planning
strategies. So how do you navigate these changes?
Here's some legitimate strategies to think about.
Assess your estate by getting a clear picture
of your total wealth. Use the thresholds we just
discussed to see. if you're likely to be affected.
Maybe lifetime gifting. So one of the most effective
ways is to make gifts while you're still alive.
You can give up up to £3 ,000 each tax year without
it being added to your estate. Now there's also
a generous exemption for gifts made from your
surplus income as long as you can prove it to
HMRC. Now a popular strategy might be to take
out a life insurance policy and place it in a
trust and this provides a tax -free payout to
your beneficiaries upon your death. This can
be used to cover any inheritance tax bill on
your other assets. There's also a spousal exemption
and this is the simplest, most powerful exemption.
Leave your estate to your spouse or your civil
partner and this is completely free of inheritance
tax and it also allows you to pass on your unused
tax -free allowances to them, doubling their
inheritance tax threshold. How about using your
pension for retirement? The most straightforward
way to avoid the tax is to use the pension for
its intended purposes. Now, many savers with
large pensions are now planning to spend more
on holidays or maybe luxuries to draw down the
funds during their lifetime. Well, be mindful
of the income tax, obviously. This is a dynamic
situation. The government has confirmed that
they're working with industry experts to refine
the process for executives and beneficiaries,
but it's clear that the days of pensions being
a completely tax exempt vehicle for wealth transfer
are coming to an end. It's now more important
than ever to have a bit of a plan for yourself
really. That accounts for all of your assets.
So I'd love to hear from you what your thoughts
are on these particular changes before I get
into my thoughts on these. So if you do have
any comments at this stage, leave them in the
comments below. We often dream about what we
would do with a massive inheritance. The kind
of money that would mean we'd never have to work
a day in our lives. We imagine the freedom, the
travel, the luxury. But what if I told you that
for some people, that exact dream becomes a nightmare.
I want to tell you about a character named Ben.
Ben grew up with everything, mansion, private
school, the trust fund. That will make most of
the dizzy. He didn't have to worry about rent,
about bills, about a job that he hated. Now his
dad Robert worked his entire life to give him
this and to give him a head start. But then Ben
one day said to his father, you didn't give me
a head start. You made me start at the finish
line. Think about that for a second. Ben has
everything, but he's got no purpose. He never
had to work for anything. He never had to fail.
He never had to struggle. And struggle as uncomfortable
as it is, Sometimes it's what forges us. It's
how we learn to get back up. It's how we find
what we're truly capable of. Ben's father thought
he was giving him a safety net, but it became
what they call a gilded cage, a beautiful, expensive
prison. Now, Ben... becomes a professional consumer
just buying things to fill a void. He's a ghost
hunting his own life. Now, the model of story
is simple. Money can give you a life without
problems, but it can also take away a life without
purpose, without the need to strive to overcome,
to build what we are. Now, this isn't to say
money's bad, but... unearned fortune without
any guidance or reason or work behind it can
be soul crushing. It can make you feel like you've
nothing to do with your life because you already
have everything. Is it better to have a life
of struggle and purpose or a life of ease with
no particular clear direction? Now from a second
story, I want to talk about the incredible weight
of doing absolutely nothing. Now imagine you're
an artist. You have a talent, a vision, but every
time you sit down to create, a voice in your
head says, so what if you fail? You don't need
the money. You can just buy a new easel tomorrow
and try again. Now that's the core problem with
unearned inheritance. It removes the stakes.
Now let's imagine two characters. We've got Chloe
and Liam who are siblings. Now, Chloe is a socialite
and an influencer who loves their life of no
consequence. Now, Liam is the artist who can't
bring himself to paint. Liam says to his sister,
talent isn't enough. You have to be hungry. You
have to want it so badly that you can't sleep.
And that's the missing ingredient, the large
inheritance. removes that hunger for some. It
also acts as an anchor. It holds you in place.
You can't fail, so you never really learn how
to succeed. Now, there's no pressure to find
your passion because you'll be comfortable no
matter what. And it feels like you're a professional
consumer instead of a creator. Your life becomes
more about spending money rather than making
a mark on the world. Now, this isn't the life
of freedom. It's a velvet cage. What's the danger?
The real danger for me is that this complete
lack of motivation, it's the slow, quiet erosion
of your purpose. You might have the freedom to
do anything, but you lack the drive to do anything
at all. This isn't just a hypothetical problem.
Many children of extremely wealthy families talk
about this as a very, very real struggle. The
money is a constant reminder that you didn't
earn your place in the world. So the question
isn't what you can buy with that money, but what
you lose. So I'm curious, if you had an unlimited
safety net, what would you choose to do? Would
you find purpose? Would you find yourself in
a gilded cage? Let me know what your thoughts
are in the comments