Maximise pension legacy after 2027 IHT changes
Do you wish to maximise your legacy from pensions post 2027
Talk to one of our financial advisers on the options to maximise the legacy for your loved ones in light of the changes from the 2024 Budget and the inheritance tax payable on unused pension pots from April 2027.
Background
For many years, retirement planning advice was straightforward: pay into your pension first and draw from it last. This approach made sense. Not only did pension contributions benefit from generous marginal income tax relief, but pensions were also one of the most efficient ways to pass wealth to your beneficiaries free from inheritance tax.
IHT from April 2027
However, in October 2024, the government announced that from April 2027, unused pension funds would be brought into the IHT net. Although the fine print about how this will actually work is still awaited, it seems inevitable; the point of providing generous tax relief whilst building up pension funds is to provide taxable income in retirement, not to provide a tax-free legacy for your beneficiaries!
The bill could be 64% or even more in some circumstances
As it stands, some unused pension pots could be subject to IHT and income tax payable by the beneficiaries as they draw income. The following tables provide a quick overview of what is happening:
| (Current Position) | Pre Age 75 | Post Age 75 |
| IHT Applicable | ✖️ | ✖️ |
| Beneficiary Income tax | ✖️ | ✔️ |
| (From April 2027) | Pre Age 75 | Post Age 75 |
| IHT Applicable | ✔️ | ✔️ |
| Beneficiary Income tax | ✖️ | ✔️ |
As it currently stands, for those over age 75, unused pension funds are first subject to IHT and then income tax on the residual when the beneficiary draws down income. The review of how it works may remove this anomaly, but there is no guarantee.
The combination of 40% IHT & then perhaps 40% income tax means that beneficiaries can end up being hit with an overall 64% tax charge. There may be circumstances where this is even higher for individual taxpayers.
If you’re concerned about how recent or upcoming changes might affect you, we’re here to help. It costs nothing to have a conversation — and it could help you avoid costly surprises down the line.
Need advice or have a question? Get in touch today