Annuity Protection - Proposed IHT Changes from 2027
Paraplanning831
Member
Hi all,
Is there any clarification as of yet about what is confirmed as coming into the scope of IHT from April 2027 - with specific regard to annuities and annuity guaranteed periods/value protection.
From my understanding, I would assume a joint-life annuity would be IHT exempt on first death.
However, for a single-life annuity that has any kind of value protection or guaranteed period, has legislation been confirmed as to how this will be treated with respect to IHT. If so, what would be the calculation required to understand the potential IHT liability?
If there is any generated documentation/legislation from the government regarding this, a point in that direction would also be appreciated.
Thank you
Comments
Hi,
From what I understand...
A joint life annuity has no IHT value on first death (assuming in good health when established).
Value protected annuity the protected value on death is the amount in the estate.
Guaranteed period annuity the protected amount is the probate value of the annuity - for which there is a standard HMRC calculator available: https://www.gov.uk/government/publications/inheritance-tax-guaranteed-annuity-calculator
What Benjamin said.
Note that there is no change to the IHT treatment for most guarantee period or value protection. They are currently in the estate, other than the rare ones where they were paid at the annuity providers discretion, which will now be in scope. You will not find any specific law as it is on first principles - things you have a power of disposal over are in your estate.
There is an outstanding issue with HMRC guarantee calculator as it assumes all beneficiaries are 20% tax-payers (presumably as that will give the highest probate value) that awaits clarification.
Doesn't take long to read the IHT manual pensions section for current position IHMTM17000 onwards.
The draft regs for 2027 are here - https://assets.publishing.service.gov.uk/media/6877b89ff5eb08157f36383b/6002_Draft_legislation_IHT_on_pension_interests.pdf
To give HMRC its due, the annuity probate calculator does state:
This calculator will estimate the open market value of the guaranteed annuity payments which are to be paid to the estate in straightforward cases. HMRC considers that the values produced represent reasonable estimates of the open market values, although you may send us your own alternative valuation if you wish. If you send us your own calculation you must also explain how you calculated the value.
I think if you have beneficiaries who are all at different tax rates, you could reasonably calculate based on actual, rather than assumed 20%. However, being careful what you wish for, if you then have non-taxpayer beneficiaries, you should expect HMRC to tell you to use the actual rate for all beneficiaries! If you have individuals that have a higher valuation than others, and a total value that isn't within any allowances or exemptions (NRB/Spouse), you could then end up with complicated tax outcomes.
I doubt HMRC will want get into the weeds on making amendments to this, given that individual circumstances allow for it to be augmented, and it's a pre-existing basis (i.e. not affected by 2027). I'm working on the basis that a guaranteed period has the value in the pdf calculation, regardless of the tax rate of the potential beneficiary (with appropriate warnings!).
Never spotted that - only ever went in and done the sums. Yes, I'd do that too!