Increasingly clients taking tax free cash to gift to younger generations

Nick Nesbitt, Head of Private Client at Forvis Mazars, warns that while more savers are tapping tax-free pension cash to support family, looming changes to inheritance tax and gifting allowances could complicate the picture.

Nick Nesbitt, Head of Private Client, Forvis Mazars commented: “We’re seeing a real uptick in clients accessing their pension tax-free cash. Partly due to the incoming IHT change on pensions, and partly due to concerns on what the Budget will bring. Perhaps more significantly, many are willing to take a 40% tax hit on the income they are drawing from their pension, if they can pass it down. 

“With more money in people’s hands it raises the question of what to do with it. Gifting has become a big focus, but it’s not as simple as taking it out of your pension and passing it down to younger generations.   

“There is a growing view that pension tax-free cash can be classed as income for gifting purposes, if taken gradually over time. In theory, this means you can pass your tax free cash on completely tax-free but HMRC hasn’t clarified this position yet. 

“The rumours of changes to gifting allowances in the Autumn Budget could be a further spanner in the works. Gifts out of normal expenditure may become limited to a fixed annual amount and there could be other changes.This would be a further blow to pension savers looking to gift their pension assets down, especially those who take an income tax hit on withdrawal.”