There’s less than a year to go before pensions fall within the scope of inheritance tax for the first time, so there’s no time to lose if you want to explore ways to potentially reduce future tax bills for your loved ones.
From April 2027, most unused defined contribution pension pots and certain pension death benefits will be included as part of your estate for inheritance tax purposes. Under current rules, pensions are usually excluded from your estate, making them one of the most tax-efficient ways to pass on wealth after your death.
Get your free guide to equity release written by Paul Lewis
The changes could have serious implications for some families, especially those with large pension savings. Many retirees have deliberately used other savings first in retirement because pensions could previously be passed on relatively tax efficiently.
Lisa Caplan, director of Charles Stanley Direct Advice and Guidance, part of Raymond James Wealth Management, said: “Anyone with significant pension wealth needs to urgently review their planning, especially if they had previously planned to leave pension assets to anyone other than their spouse. Beneficiaries stand to face a double whammy of income tax and inheritance tax on pension assets left to them assuming the donor passes away over the age of 75.”
Despite the reforms, many people still won’t pay inheritance tax. Currently, everyone has a tax-free inheritance tax allowance of £325,000, known as the nil rate band. An additional £175,000 residence nil rate band may also apply if you leave your home to direct descendants, such as children or grandchildren. Assets left to a spouse or civil partner are usually exempt from inheritance tax altogether.
If you’re concerned about how the changes could affect your family, here are some of the steps you might want to consider now.
1. Sort out your pension paperwork
The last thing your loved ones will feel like doing when you die is tracking down all your pension paperwork, so make sure you get your affairs in order now and leave clear records for them to find.
Maike Currie, spokesman for PensionBee, said: “One simple but important thing people can do now is ensure their expression of wish forms detailing their beneficiaries are up to date with all pension providers. Clear beneficiary information and accurate records could significantly reduce delays, confusion and stress for loved ones later on.”
It’s also sensible to make a list of all your pension schemes and where they are held, particularly if you’ve changed jobs several times over the years.
2. Consider consolidating if you have lots of pensions
If you’ve paid into lots of different defined contribution pension schemes over the years, you might want to consider consolidating them into one plan, to make your retirement savings easier to manage and also to make life simpler for loved ones when you die.
Andrew King, pensions technical specialist at Evelyn Partners, said: “Pension consolidation can be a good move for a number of reasons, but the inclusion of unused pension pots in IHT liabilities will add extra urgency for many families. This is because having several, scattered defined contribution pension pots could land their personal representatives with a real admin headache, interest charges from HM Revenue & Customs and potentially a lot of stress.”
However, consolidation isn’t right for everyone. Defined benefit or final salary pensions, which provide a guaranteed income for life, are often valuable and may be best left where they are. Before transferring any pension, check whether valuable guarantees or benefits would be lost.
3. Start gifting earlier
If you want to reduce any potential inheritance tax bills for your loved ones, you might want to look at ways to gift them money now.
Ms Caplan said: “Anyone can give away £3,000 tax year free of potential inheritance tax, and you can make any number of smaller gifts of up to £250 per person a year.”
Larger gifts may also fall outside your estate if you survive for seven years after making them.
Some people may also benefit from using ‘surplus income’ gifting rules. These allow you to make regular gifts from income, rather than savings, without triggering inheritance tax, provided the payments don’t affect your standard of living. Keeping clear records is important if you use this exemption.
Pension and inheritance tax planning can be complicated, so financial advice may be worth considering if you’re unsure of the best ways to keep tax bills to a minimum.
Request your free guide to pensions planning from our partner Pense
Authors
Read More
- 10 Greatest Manga Endings of All Time
- Review: Final Fantasy Tactics: The Ivalice Chronicles (PS5) – Still the Benchmark for Turn-Based Tactics
- Mark Zuckerberg & Wife Priscilla Chan Make Surprise Debut at Met Gala
- GBP CNY PREDICTION
- Elon Musk’s Mom Maye Musk Shares Her Parenting Philosophy
- Forza Horizon 6 Car List So Far: Confirmed Highlights, Cover Cars, DLC, and Rewards
- Miranda Kerr Shares “Quick” Procedure She Got Before Met Gala 2026
- The WONDERfools ending explained: What happened to the Child of Eternity?
- Ranking the 5 Best Spring 2026 Anime So Far (Mid-Season Update)
- Sony Plans to Start Shooting Horizon Movie in 2026, with 2027 Release Planned
2026-05-22 12:02