Your Pension Is No Longer Safe From IHT

Why It Matters

The reform significantly increases potential tax bills on pensions and could slash inherited pension values, requiring individuals and advisers to rethink retirement and estate strategies well before the deadline. It raises the risk of unintended double taxation and greater complexity in beneficiary outcomes.

Summary

From April 2027 UK pensions will be treated as part of the deceased’s estate for inheritance tax (IHT) purposes, reversing the current advantage that often keeps pensions outside the estate. Under today’s rules, pensions passed on before age 75 are typically tax-free to beneficiaries and after 75 are taxed at the recipient’s marginal rate when withdrawn; under the new rules a portion of the pension could be subject to the 40% IHT immediately. That means beneficiaries could face effective double taxation — first losing up to 40% to IHT and then paying income tax when they access the remaining funds — materially reducing inheritances. The change will upend common advice to spend other assets before pensions and force urgent estate and pension planning ahead of the April 2027 implementation.

Original Description

From 2027, pensions will be subject to inheritance tax.

Lisa Conway-Hughes, a certified financial adviser and founder of LCH Wealth, explains how the tax regime is changing, and how much it could cost your loved ones.

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