Clients are increasingly accessing their tax-free pension allowance to gift to younger generations amid inheritance tax (IHT) changes and Budget speculation, according to Forvis Mazars.

Forvis Mazars head of private client, Nick Nesbitt, highlighted rumours about tax-free pension allowances in the upcoming Budget, and a growing belief that pension tax-free cash can be considered income for gifting purposes if taken gradually over time.

While this potentially allowed it to be passed on tax-free, Nesbitt warned that clients should exercise caution as this is yet to be confirmed by HMRC.

“We’re seeing a real uptick in clients accessing their pension tax-free cash,” Nesbitt stated.

“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 per cent tax hit on the income they are drawing from their pension, if they can pass it down.”

Nesbitt added that, with more money in people’s hands, it raised the question of what to do with it.

While gifting had become a big focus, it was not as simple as taking it out of a client’s pension and passing it down to younger generations, he noted.

“There is a growing view that pension tax-free cash can be classed as income for gifting purposes, if taken gradually over time,” Nesbitt continued.

“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.”

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