What are the changes to Inheritance Tax on pensions from 2027?
There are changes ahead when it comes to inheritance tax on pensions. From April 2027, unused pension pots and death benefits will be included in an individual’s estate for inheritance tax (IHT) purposes.
Inheritance tax on pensions, what next?
Matt King, a Director in our Financial Services team added “pension pots are currently exempt from IHT rules, making them a popular tool for estate planning. Under the new system, personal representatives handling a deceased person’s affairs must work with Pension Scheme Administrators (PSAs) to determine the value of any unspent pension assets and allocate allowances accordingly. Each pension fund will then be responsible for paying its share of IHT before probate can be granted”.
Tim Humphries our Tax Partner added “This change which was announced in the Autumn Budget, could increase costs and cause delays for around 50,000 families a year. The ATT has raised concerns that these additional administration steps will increase the time and effort required to finalise Estates. Delays in obtaining probate could create difficulties for beneficiaries and the added complexity, whilst good for professional advisers, it is not good for those managing estates”.
Tim further added “The ATT has called for a separate IHT regime for pensions to reduce the impact on bereaved families. Today, pensions play a key role in IHT planning, so we would always recommend that you review your pension arrangements to ensure they remain tax-efficient. Yes, it’s true, some view tax-free pension pots as a loophole, but others argue they provide a vital means of passing on wealth and ensuring the continued financial stability of your family when you are no longer there to help!”.
If you would like to talk to a member of our tax team regarding IHT and pension planning please contact us on 020 7870 9050.
Our Financial Services team are also delighted to be offering free financial health checks which would include a review of your IHT and pension arrangements. If this is something you would like to explore further contact us on 020 7870 9050 and arrange your free financial health check.
