15 Sep Inheritance Tax and Pensions

Inheritance Tax and Pensions

In the budget last October, Rachel Reeves announced plans to include pensions in estates for the purposes of Inheritance Tax (IHT). This is a change and will impact many families.

The changes are not until April 2027 so the current rules still apply, later in this email we will cover the changes, but first we must not overreact. Pensions remain an excellent savings vehicle.
This email is an overview, please speak to your adviser if you wish to discuss further.

Why Pensions remain attractive

• Inheritance Tax – Unused pensions can usually still be passed to a spouse or civil partner free of IHT
• Tax relief on personal contributions – HMRC tops up at your marginal rate, with some individuals able to achieve effective relief of up to 60%
• Salary sacrifice – saves Income Tax and National Insurance.
• Employer contributions – additional contributions on top of your own contributions.
• Business owner advantage – company pension contributions can be treated as an allowable business expense, reducing Corporation Tax.
• Tax-free investment growth – no Capital Gains Tax or Income Tax within the wrapper.
• 25% of the fund available tax-free – when you access the pension there is a potential for a lump sum or income stream tax free. This is subject to limits.
• Flexible access – draw income in a way that suits your tax position.
• Maximising Inheritance – Your beneficiaries may still pay less income tax than you especially if you die before age 75.

What are the draft rules? 

• From 6th April 2027, most unused pension funds and death benefits will be included in the value of a person’s estate for inheritance tax purposes.
• For any pension death benefits passing to a surviving spouse, civil partner, registered charity or political party, the existing exemptions will remain.
• Personal Representatives will be responsible for reporting and paying any inheritance tax due on unused pension funds..
• Pension Scheme administrators will have new duties to support Personal Representatives in paying inheritance tax including a new Pension Inheritance Tax Payment Scheme.

Are there any pensions that are exempt from the rules? 

• Joint Life Annuities
• Death in Service schemes
• State pensions
• Dependent’s scheme pensions from money purchase schemes and Defined Benefit Schemes

What will we be reviewing with you.

Marriage/Civil Partnership! 
If you’re not married to your partner then get it done. Not for romance, for tax reasons – this includes civil partnerships.
Spending
The easiest way to pay no Inheritance Tax is to spend the money, however this is only if you have enough money to support your lifestyle for the rest of your life.
Gifting
There are many ways to gift excess money, both directly and indirectly.
Using Inheritance Tax exemptions 
Are you using the full potential of exemptions available?
Investments outside of Pensions
There are still investment solutions outside of pensions that can qualify for Inheritance Tax exemptions. If suitable, we will discuss how they fit your objectives.
Life Assurance
If you can’t afford to give money away, you may be able to insure the liability.
Review Expression of Wish forms
Who gets the money when you die and what is the most tax effective way.
Annuities
The balance between guaranteed income and passing an inheritance is changed by these rules.
Review your Wills
Do the new rules change the balance of your wishes?

Kind Regards
Paul Richardson BA (Hons), FPFS, Cert SMP
Chartered Financial Planner
Financial Planning Director
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​​Risk Warnings

• The value of an investment and the income from it could go down as well as up.
• All investing is subject to risk, including the possible loss of the money you invest.
• Past performance is not a reliable indicator of future results.
• Diversification does not ensure a profit or protect against a loss.
• Please remember that all investments involve some risk. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income
• This communication is for general information only and is not intended to be individual advice. It represents our understanding of law and HM Revenue & Customs practice as at 15th September 2025. You are recommended to seek competent professional advice before taking any action.