Pension inheritance tax rules to change from April 2027
UKPulse Money Desk
From April 2027, pensions will be included in an individual's estate for inheritance tax purposes, regardless of their age at death. This change could lead to an inheritance tax bill, though it would not apply to a spouse.
- From April 2027, pensions will be part of an individual's estate for inheritance tax.
- The change could result in an inheritance tax bill, but not for a spouse.
- Pensions can only be inherited income tax-free if the holder dies before age 75.
From April 2027, pensions will be included as part of an individual's estate upon their death, potentially leading to an inheritance tax bill. This change will apply regardless of the pension holder's age when they die.
However, this would not apply to a spouse, though they would still be liable for income tax on the inherited pension. Pensions can only be inherited income tax-free if the holder dies before the age of 75, a rule that will not change in April 2027.
Beneficiaries have the option to continue with a beneficiary drawdown pension. These plans can be transferred to other providers, allowing pensions to be passed down through generations. The application of income tax on withdrawals from an inherited fund depends on the age of the last owner of the pension, meaning taxation can vary as the plan passes to new beneficiaries.
Why this matters: The change in how pensions are treated for inheritance tax purposes could affect estate planning for individuals and their beneficiaries.
What this means for you: If you have a pension, from April 2027, its value will be considered part of your estate for inheritance tax purposes upon your death, potentially affecting your beneficiaries.