For years, pension pots have been one of the most tax-efficient vehicles for passing on wealth. Unlike other assets, they were typically free of inheritance tax (IHT) when transferred on death. That’s about to change.
From April 2027, inherited pension pots are expected to fall within the scope of IHT. For many families, this is a seismic shift – especially for those who have carefully structured their wealth around pensions as the safest way to pass money to the next generation.
The implications are stark. If your pension pot passes to your heirs after 2027, up to 40% could be lost in tax. This doesn’t just affect the wealthy – it could impact anyone with a significant defined contribution pension.
Why is this happening? The government is targeting pensions as part of a broader strategy to close tax gaps and raise revenue. With inheritance tax receipts already at record highs, pensions represent an untapped source of funds.
What can you do?
- Review your beneficiaries. Who inherits your pension and how it integrates with your wider estate matters more than ever.
- Consider lifetime access. Drawing down pensions strategically during retirement may be preferable to leaving large balances.
- Look at alternative structures. Trusts, gifting and life insurance can all help balance the new risk.
The change underlines a key truth: inheritance tax planning is never static. Rules shift and families who don’t adapt pay the price.
As the Inheritance Guru, I help families see around corners – anticipating changes and protecting wealth before new rules bite.
Sally Herdman – The Inheritance Guru
- 📞 07831 379562
- 📧 help@theinheritanceguru.com