Pension Inheritance Tax Changes 2024: Protecting Your Wealth with QNUPS and Indexed Universal Life Insurance (IUL)
The proposed UK inheritance tax (IHT) changes will have far-reaching implications, especially for high-net-worth individuals in the GCC looking to shield their wealth for future generations. Labour’s Chancellor, Rachel Reeves, announced that starting in April 2027, inherited pensions will be subject to IHT. Pension assets exceeding the £325,000 threshold may incur a 40% tax, adding a new dimension to wealth planning and preservation. At GSB, we believe these changes require careful, strategic planning to maximise wealth protection for families.
For those looking to manage these upcoming liabilities, advanced planning tools such as Qualifying Non-UK Pension Schemes (QNUPS) and Indexed Universal Life (IUL) insurance provide powerful means to protect legacy wealth. Here’s a look at how these tools can work together, enhanced with GSB’s unique perspective and expertise.
The changing landscape of pension inheritance tax
The recent announcement marks the end of a long-standing exemption that kept personal pensions out of UK IHT. From 2027 onward, pension pots will face inheritance tax, just like other assets. For many high-net-worth families, this shift could mean that a larger share of their estate falls within the taxable bracket. To minimise the impact, affluent individuals will need to review their retirement and estate planning strategies.
Preparing early is essential. By considering these changes now, individuals can take steps to ensure that more of their assets are passed on to heirs, rather than lost to IHT.
Qualifying Non-UK Pension Schemes (QNUPS): A continued benefit
Although the new policy proposes to apply IHT to Qualifying Non-UK Pension Schemes (QNUPS), these schemes remain an essential component for estate planning. Designed initially for UK expats or individuals with international assets, QNUPS are flexible, allowing tax-efficient asset transfer while providing an additional layer of protection.
GSB Wealth’s advisers can assess how a QNUPS fits into your broader estate plan, focusing on how it can be structured alongside other tools, like Indexed Universal Life (IUL) policies, to create a comprehensive wealth protection strategy.
Why combine QNUPS with IUL insurance?
An IUL insurance policy can add significant value to an estate plan structured around QNUPS. An IUL policy offers:
- IHT Offset: The death benefit from an IUL policy can be used to help offset potential IHT liabilities, reducing the net tax burden on pensions.
- Flexible Cash Value Access: Tax-free cash value growth can act as a liquidity reserve, supporting financial needs during retirement or legacy planning adjustments.
For high-net-worth individuals, adding an IUL policy to a QNUPS strategy provides a dual advantage: covering IHT liabilities while ensuring that heirs receive a higher proportion of the estate unaffected by pension tax changes.
Case Study: How QNUPS and IUL can help reduce pension IHT
Consider a scenario involving a 50-year-old male, a UK expat based in Dubai, with a £1 million pension pot. He plans to retire at 61, drawing an annual income from his QNUPS and maximising the wealth he leaves for his family:
- Standard QNUPS Plan: Without additional tools, an estimated £600,000 would be subject to a 40% IHT.
- QNUPS with IUL: By adding an IUL policy with a £3,200,000 death benefit, the IHT liability is covered, preserving around £1,920,000 for his heirs – more than three times the amount compared to using a QNUPS alone.
This example highlights how combining QNUPS with IUL policies can greatly increase the value left to beneficiaries. At GSB, we tailor these strategies based on client needs and their unique residency status, ensuring that the chosen approach aligns with personal and regional considerations.
Why QNUPS and IUL are valuable in estate planning
As the 2027 pension inheritance tax changes approach, high-net-worth individuals can use QNUPS and IUL together to:
- Offset IHT Liabilities: An IUL policy can create a death benefit that covers IHT obligations, reducing the tax burden on pensions.
- Increase Wealth Transfer: The combination of QNUPS and IUL allows more wealth to stay in the family rather than going to taxes.
- Gain Tax-Free Growth and Liquidity: IUL policies provide tax-free cash value growth, accessible under QNUPS rules, which can be a financial cushion in retirement.
With our comprehensive approach to estate planning, GSB’s team can help you navigate the latest UK IHT changes and determine how QNUPS and IUL policies can work together to secure your legacy.
Get in touch
Concerned about the potential impact of the proposed pension inheritance tax changes on your estate? GSB’s team of experts can help. Contact GSB today if you would like to discuss any of these matters with our in-house team.
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Disclaimer
This content is provided for informational purposes only and should not be considered financial, tax, or legal advice. The information reflects proposed changes that may impact inheritance tax on pensions and estate planning, but individual circumstances vary. GSB Capital Ltd (DIFC Licence No. CL4377) advises readers to consult with qualified advisors to understand how these changes may affect their personal financial situation. GSB Capital Ltd is not liable for any actions taken based on this content. Tax laws and policies are subject to change.