Can I pass on my pension as part of my estate?

For many people, your pension will form a significant part of your estate and may hold significant value by the time you finish paying into it.

Some pensions can be passed on to loved ones as inheritance, including spouses, children or grandchildren, if it is unspent in your lifetime.

While many people choose to spend their pension in full, there are many reasons why this might not be the case, including:

• Being supported by someone else, such as a working spouse
• Having a larger pot than you need
• Choosing to minimise spending to pass money to your beneficiaries
• Early death.

Pension pots are a popular way to pass a substantial portion of your estate to your loved ones tax-efficiently as this money is not subject to Inheritance Tax (IHT) – but this is changing.

The 2024 Budget

In a bid to close a £22 billion “black hole” in public finances, Chancellor Rachel Reeves announced changes to the rules around IHT in the Autumn Budget.

From 6^th April 2027, unspent pension pots will be brought into the scope of IHT.

This will have a significant impact on your ability to pass down wealth to your loved ones tax-efficiently – making it more important than ever to plan proactively.

The Government is also scaling back key reliefs, limiting the full 100 per cent benefit of Agricultural Property Relief and Business Property Relief to the first £1 million of combined assets, with the reliefs dropping to 50 per cent beyond that.

With this in mind, you should be looking at planning ahead to minimise the IHT due on your estate.

Reducing your bill

For many people, bringing pensions into the scope of IHT will result in an inevitable increase in the IHT due on their estate.

However, there are steps you can take to mitigate this, including:

• Gifting – Under current legislation, you can draw down 25 per cent of your pension tax-free up to the value of £268,275, and you can use some of this as a gift, which will not be subject to IHT provided you live for seven years or more afterwards.
• Use allowances – Your executors will not pay IHT on the first £325,000 of your estate, but this can rise to up to £500,000 if you pass your home to a direct descendant.

Remember that anything passed to your spouse is free from IHT, including gifts made during your lifetime from your pension.

To plan your estate and pass on as much as possible to your loved ones, contact our team to discuss your needs.

The National Minimum Wage (NMW) and the National Living Wage (NLW) have undergone significant increases this year and last.

For the first time, the NLW was extended in April 2024 to 21- and 22-year-olds, rising to £11.44 per hour. For those between 18 and 21, the NMW was set at £8.60, and at £6.40 for apprentices and those under 18.

Following the 2024 Autumn Budget, these rates are set to rise again to:

• NLW – £12.21
• NMW (18-21) – £10
• NMW (Under 18 and apprentice) – £7.55

All employers must pay workers at least the appropriate rate of NMW/NLW. This is a legal requirement unless you work in a specific circumstance, such as being self-employed.

If you are concerned that you are not being paid at the minimum legal level, it is important that you address this with your employer.

Checking your pay

When the NLW and NMW increase, your employer is responsible for updating their payroll accordingly from the date the rise is implemented.

If you think you are not being paid correctly, initially raise the issue with your employer – using your payslip as evidence.

You are entitled to the appropriate minimum wage level whether you are paid by salary or hourly pay.

It can be more complex to work out your entitlement if you are paid via a salary, but it is important you do so as this is where underpayment often slips under the radar.

Calculate your hourly pay with the basic annual hours outlined in your contract and divide this by the number of pay periods per year – typically 12 if you are paid monthly.

You can then divide this figure by the amount in each pay packet, giving you your hourly rate.

For example, if your annual hours is 1,950 (around 37.5 hours per week), you work an average of 162.5 hours per month.

Divide a pay packet of £1,600 (pre-tax) by the figure and the hourly rate works out at £9.85 per hour.

This is now below the NLW and will soon be below the NMW for over 18s as well – but the difficulty is that, not long ago, this was an acceptable wage.

If you started a role at a certain salary, it is important that you review it regularly to ensure that you continue to receive the wage to which you are entitled.

Escalating a dispute

Many difficulties with being paid at the correct rate arise from error or changes in legislation.

However, if your employer still refuses to pay you according to your entitlement, you can make a complaint to HM Revenue & Customs (HMRC).

HMRC can send your employer a notice to pay you correctly in addition to providing you with any arrears, in addition to a fine.

HMRC can also take your employer to Court on your behalf if the dispute cannot be resolved, or you can go directly to the Employment Tribunal yourself.

You cannot be dismissed for asking to be paid at the NLW or NMW. If you are, you may be able to claim for unfair dismissal.

Contact our team for further advice and support on your wages.

The Government has announced a rise in Stamp Duty Land Tax (SDLT) on Additional Dwellings from three per cent to five per cent.

Additionally, companies buying dwellings for over £500,000 are facing an increased flat rate of 17 per cent, up from 15 per cent in the same time frame, which is set to push up the cost of commercial purchases of high-value properties substantially.

This additional rate is due when you buy a residential property that is not your main residence, whether as a second home, a buy-to-let property or part of a corporate portfolio.

The Government hopes that this will free up the market for people looking to buy their primary home by making it less financially appealing to invest in additional properties.

What does this mean for adding to your portfolio?

SDLT and investment

Residential property is a popular investment option for individual landlords and commercial private housing providers.

However, the rise in SDLT on Additional Dwellings will make it more expensive to purchase these properties, making higher-value residences particularly costly.

It is likely that we will see a decrease in the number of individuals investing in residential properties as costs become prohibitively high compared to the cost to those buying their main home.

For commercial enterprises, it will depend entirely on whether the risk of additional costs is outweighed by the return on investment (ROI) on the property in the long term, as well as available cash reserves to meet higher initial costs.

Mitigating these costs

The Chancellor brought in new legislation around SDLT with immediate effect, giving investors little time to plan and no opportunity to expedite purchases.

However, you can still take steps to reduce the overall burden, including:

• Engaging in thorough due diligence of the property’s classification and use.
• Identifying any potential issues such as necessary works that could increase costs.
• Carefully negotiate the cost of the property to potentially cut SDLT or move into a lower band.
• Acquire mixed-use properties with residential and commercial elements, as this could incur a lower rate of SDLT.
• Purchase via a limited company, as this can result in a reduced liability, particularly when transferring properties to a connected company.

We can also help you to minimise the cost of the sales process with our conveyancing experts and our diverse experience with contracts, searches and surveyors.

For advice on residential property purchases and SDLT, please contact our team.