From new death tax to boosting your state pension – how to protect your finances after Rachel Reeves’ Budget

MILLIONS of households will see their finances shaken up after Chancellor Rachel Reeves gave her first Budget this week.

But how can you protect your family’s funds? Lana Clements explains everything you need to know…

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NEW DEATH TAX

 PRIVATE and workplace pensions will no longer be exempt from inheritance tax from 2027.

At present, any money in your pension when you die can be passed on free of death duties, meaning they are a tax-efficient way of leaving cash to loved ones.

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But the new plans will see your pension pots added to the value of your estate — so could incur a tax bill.

Individuals can pass on up to £325,000 tax-free when they die, while couples who are married or in civil partnerships can combine their allowances and pass on £650,000.

Anything over that is taxed at 40 per cent. Although, there are extra allowances for homes.

At present, only 5 per cent of households pay inheritance tax — but now pensions group Canada Life says that number will almost double by 2030.

The new rules will affect those with modern defined contribution pensions.

It’s unclear whether those who have saved into protected funds will be affected by the move.

Nigel Green, the CEO of financial consultancy the deVere group, said: “Many pension holders, particularly those who have saved for years, never anticipated having to navigate such a significant change.

“The potential ripple effects are staggering — increased financial anxiety among retirees, a hastening of pension fund withdrawals and the gutting of a system designed to support families long-term.”

There may be ways for pension savers to shield themselves from the new tax. This includes withdrawing larger amounts from pensions.

Savers can take out 25 per cent of their pension tax-free and move it into a tax-efficient account such as an ISA.

However, experts have previously advised against this due to the limit on returns.

 You can get free advice via the Pension Wise service.

You can also make an unlimited number of cash gifts. As long as you don’t die within seven years, these will be tax-free.

TAX-FREE ALLOWANCES

NOW is a good opportunity to protect your wealth by maximising tax-free allowances, if you are in a position to do so.

Firstly, take advantage of tax-free savings allowances which are £1,000 for basic-rate tax­payers and £500 for higher-rate ones.

You will be liable to pay tax on savings above this.

However, you can save £20,000 per person (or £40,000 per couple) annually tax-free in an ISA.

You can also save £9,000 a year per child into a Junior ISA.

PENSION PERKS

DON’T forget about tax-free pension perks, too.

If your employer will match your contribution into your pension fund, then it could be worth upping your payments.

For example, someone on a £35,000 salary saving four per cent, or £116 a month, for 35 years matched by their employer could expect a total fund of £283,000, according to calculations by pension platform AJ Bell.

However, if you upped that to 7.5 per cent, matched by your employer, it would mean you would put away an extra £102 a month, but would make the total fund £531,000 — an additional £248,000 for retirement.

If you have a self-invested pension you can save £60,000 per year without paying a tax charge. It had been feared that Reeves would tinker with pension tax relief or lump sums — but she dodged it.

This is a relief because many need to put more money into pensions.

Nigel Peaple, from trade body Pensions And Lifetime Savings Association, said: “Most ­people in the UK need to save more, not less, into a pension to have a good retirement income.”

CHECK YOUR PAY

THE Chancellor revealed a surprise pay boost for millions of workers by announcing the freeze on income tax thresholds and National Insurance Contributions will end in April 2028.

This will add £69 a year to someone’s take-home pay on a salary of £35,000, assuming an inflation-linked increase of two per cent to the personal allowance, according to calculations by financial services firm Evelyn Partners.

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 In the meantime, make sure you are paying the correct level of income tax.

You can check your tax code by looking at your pay slip.

The most common code is 1257L and indicates you are entitled to the standard tax-free personal allowance of £12,570.

FIND MISSING CASH

MILLIONS who receive benefits, including pension credit, and those on the state pension will get a boost next year as payments will rise, the Chancellor confirmed this week.

However, billions of pounds worth of benefits are left unclaimed by people who are eligible for payments.

The Sun offers a free online benefits checker in partnership with poverty charity Turn2Us.

It will quickly tell you if you’re missing out on any cash. If you are unable to access the internet, you could ask a friend or relative to help you do the check.

Visit thesun.co.uk/benefits checker to access the tool or try Age UK on 0800 678 1602.

BOOST STATE PENSION

THE State Pension is protected by the triple lock, making it an even more valuable source of income during retirement.

You are only entitled to the full payment if you have 35 years of NI contributions.

However, if you fall short, you can plug gaps by buying contributions. These cost £824.20 a year for all years from 2006/07 to 2022/23.

Buying a year boosts your pay by more than £325 annually, meaning the cost is paid off within three.