Starting from 2027, homeowners in England are set to face an Inheritance Tax bill of £82,158 as per the recent Budget updates, according to HMRC.
Quilter has estimated that individuals owning an average-valued home (£290,395) along with a moderate pension pot (£415,000) could incur this average tax liability.
HMRC has recently announced that beginning April 2027, pension savings will be considered part of a deceased individual’s estate, potentially subjecting retirement savings to Inheritance Tax.
Under current regulations, inheriting a pension from someone who passed away before the age of 75 incurs no tax. However, if the deceased was over 75, Income Tax is applicable when drawing from the inherited pension as it is treated as income.
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Recent data from Quilter indicates that unmarried families with young children, excluded from certain Inheritance Tax exemptions due to their marital status, could face increased vulnerability.
Inheritance Tax becomes payable when an estate surpasses £325,000, with a standard rate of 40% applied to the estate value exceeding this threshold.
However, no Inheritance Tax is levied when assets are inherited by a spouse or civil partner. Transferring your home to your children or grandchildren can raise the Inheritance Tax threshold to £500,000.
This includes the standard allowance of £325,000 plus an additional £175,000. Unused Inheritance Tax allowances in a marriage or civil partnership can be transferred upon death.
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