Budget 2024: Huge pension change that will directly impact your family confirmed

Rachel Reeves has today delivered her Autumn Budget - the first Labour Budget in 14 years - where she announced sweeping changes that will impact your pension and retirement pot

Rachel Reeves has confirmed pensions will soon be subject to Inheritance Tax as part of her Autumn Budget.

The Chancellor confirmed pension savings will now be included as part of the "estate" of someone who has died from April 2027 and will be subject to Inheritance Tax. Under current rules, if you die before the age of 75, the person inheriting your pension will not have to pay tax on your retirement savings.

If you die after the age of 75, those who inherit your pension will pay Income Tax when they draw from it, as it will be treated as income. Helen Morrissey, head of retirement analysis, Hargreaves Lansdown, warned the move will be disruptive to people's financial planning in later life - and said it will likely spark a rush of people gifting more money to loved ones while they are still alive.

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She said: “They will also look to spend down their pensions as retirement income rather than leave them untouched, a move which could keep the rest of someone’s estate below the IHT threshold. We may also see an increased interest in annuities as people look to secure a guaranteed income while also keeping their estate below the inheritance tax threshold.”

Gary Smith, financial planning partner and retirement specialist at wealth management firm Evelyn Partners, said: "Retirees and savers have 18 months to review their long-term plans. As defined contribution pension funds could now be subject to up to 40% IHT on death, we will probably see greater withdrawals from pension pots. Pension withdrawals are subject to income tax, so some savers in drawdown will have an eye on the frozen £50,270 threshold at which point their overall income from all sources will be taxed at 40%."

Rachel Reeves also confirmed other Inheritance Tax changes in her Budget. The current Inheritance Tax thresholds will remain frozen by a further two years until 20230, while she also issued an update on how business and agricultural assets are taxed. The first £1million of combined business and agricultural assets will continue to be free from Inheritance Tax - but from April 2026, assets over this amount will be subject to tax but given a 50% relief, which means an effective rate of 20% Inheritance Tax.