Over-55s are planning to gift approximately £8.3 billion to family members before April 2027, when the Government will start including unspent pensions in inheritance tax calculations, according to research by Interactive Investor. The shift in policy, announced by former Chancellor Rachel Reeves, has prompted many families to take action before the new rules take effect. Inheritance tax is levied at 40 per cent on estates above certain thresholds: £325,000 for single people, £650,000 for married couples, or £500,000 and £1 million respectively if passing on a home to direct descendants.
Interactive Investor surveyed 5,000 people, of whom 1,884 were aged over 55. The median gift people over 55 said they planned to make was £3,000, which represents the annual amount that can be gifted free of inheritance tax. Among those over 65, the median planned gift rose to more than £5,000. Using official population data, Interactive Investor estimated that nearly 2.8 million over-55s plan to gift money before the April 2027 deadline.
The research revealed varied motivations for gifting. Among retirees surveyed, 37 per cent cited avoiding further tax when they die, while 41 per cent wanted to help out a family member and 48 per cent hoped to see the money benefit a loved one during their own lifetime. Interactive Investor noted that 50 per cent more people plan to gift over the next three years than did in the previous three-year period, with the sense of urgency increasing with age. The number of over-65s planning to gift nearly doubled that of 56 to 65-year-olds preparing to do the same.
Craig Rickman, personal finance expert at Interactive Investor, said the end of the current tax year is shaping up to be a cliff edge for retirement savers. He warned that while pensions have traditionally been tax-efficient for passing on wealth, bringing unused savings into the inheritance tax net is prompting many to rethink their strategy. However, Rickman cautioned that pensions retain valuable tax advantages and should still play a central role in most retirement portfolios, alongside other tax-efficient vehicles such as Individual Savings Accounts.
For those considering gifting strategies, annual tax-free gifts of £3,000 are permitted, plus unlimited small gifts of up to £250. Unlimited regular gifts free of inheritance tax are also allowed if they come from spare income, though this must be provable. Alternatively, spouses can inherit pensions tax-free, potentially delaying and minimizing eventual inheritance tax bills. Individuals should ensure their families have details of pension holdings and relevant financial firm contact information.
For UK savers and retirees, the pending inclusion of unused pensions in inheritance tax calculations from April 2027 means many will need to reconsider how they structure their estates and retirement spending plans to minimise tax liabilities for their heirs.