UK households warned they must 'gift' their children money urgently

UK households can legally avoid a inheritance tax raid from HMRC and the new Labour Party government, they have been told. Inheritance tax is a 40 per cent charge on the estates of individuals who have passed away if their money, possessions and property are valued above £325,000.

A further 38,500 estates will face an average of £34,000 in additional inheritance tax due to pension assets being included in estate valuations. Gary Smith, a financial planning partner at Evelyn Partners, said: "More families will be drawn into the web of inheritance tax from 2027, and some of those will need to start planning now if they want to mitigate the effects."

To combat it, Mr Smith encourages increased lifetime gifting and spending of pension funds. "One possible reaction to suddenly finding that a whole chunk of money that was previously immune to IHT will now be added to the estate is to start giving it away during lifetime or spending it," says Smith.

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"Anyone who is married should check their pension death benefit nomination," he said, adding: "Under current rules if the pension holder dies at or after age 75 then the beneficiary must pay income tax at their marginal rate as they access funds from it."

"The IHT rule change might make the guaranteed income of annuities become more attractive to more retirees," Mr Smith said. "They might decide to divert the money that was going towards their own pension contributions into lifetime gifts to family, such as into Junior ISAs or a pension for adult or child relatives," Smith explained too.

"For those who are looking at substantial IHT liabilities after pensions are included in estates, taking out whole of life cover can be an efficient way of insuring your inheritance tax liability," Smith also went on to advise.