Combined with the family property and other assets, the inclusion of pensions in the inheritance tax net will mean even those with modest estates are likely to be affected.
Here’s what you can do today to shield your hard-earned pension savings from the taxman.
Giving gifts
Giving gifts during your lifetime is one of the simplest ways to bring down the value of your estate so it falls within the tax-free allowances.
Inheritance tax is paid at a rate of 40pc on assets over £325,000, with an additional £175,000 for anyone passing a main residence to a direct descendant.
Married couples can combine allowances to shield up to £1m. If your estate exceeds this, there could be tax to pay – and, if your estate is more than £2m, the property allowance will start to gradually reduce.
In addition to these, taxpayers get a £3,000 annual inheritance tax exemption for gifts to use during their lifetime. You can also bring forward the previous year’s allowance, if you haven’t already used it.
There is also a £250 “small gifts” allowance, which is the maximum gift value per person – but you can give up to £250 to as many people as you like (as long as you haven’t used another allowance on them).
Other gifts might start out as being liable for inheritance tax but, over time, they drop out of your estate.
These are known as “potentially exempt transfers”, which come under the seven-year rule – because gifts (of any value) made seven years or more before death will not be considered part of your estate, and will be in no danger of inheritance tax.
If you die sooner, inheritance tax may be payable on the gift, but the rate tapers after three years.