Pensions and Inheritance Tax

From April 2027, the rules around pensions and Inheritance Tax are changing. Here is what you need to know.

Currently, pensions policies are not classed as being part of the estate for Inheritance Tax (IHT) purposes.

However, under the budget announced by the Chancellor Rachel Reeves in November 2024, this is set to change with effect from April 2027.

From this date, the amount of any defined contribution pension policies will be taken into account in calculating the overall estate for IHT.
From April 2027, on the death of an individual, the value of any pensions policies in excess of the IHT Nil Rate Band (£325,000 for a single person or £500,000 if they have a residential property, or £650,000 for a married couple or £1 million if they have a residential property) will become payable 6 months after the date of death of the individual.

It will be the responsibility of the personal representatives to ensure that funds are paid to HMRC within this timescale, a fact which of itself may provide significant potential difficulties.

As it has been confirmed that the IHT nil rate band will be frozen until 2030, the potential IHT liabilities provided by larger pension funds will only increase over time.

Therefore it is now becoming increasingly important to receive advice in relation to pensions and inheritance tax.