Inheritance Tax Pensions Raid – Three things to consider before your annual review
Inheritance Tax Pensions Raid – Three things to consider before your annual review. Some thoughts from Natalie Kempster, Chief Client Officer at Purposeful Group.
From April 2027, most unused pension funds and death benefits will form part of your estate for inheritance tax purposes. For years, pensions sat outside your estate, which made them one of the most efficient ways to pass on wealth. That is changing, and it is worth understanding what it means for you before you sit down with your financial planner this year.
In practice, unused pension savings will usually be added to the rest of your estate when working out whether inheritance tax is due. This does not mean every estate will owe more. Your nil rate band and residence nil rate band still apply, and there is time to plan before the rules take effect. This is not a reason to panic; it is a reason to understand your position clearly.
First, look at how much of your estate is now exposed. If a meaningful part of your wealth is held in pensions, your IHT position may look very different from how it did twelve months ago. Ahead of your meeting, check the value of any property, savings or substantial personal items that are not managed by your planner.
Second, check who you have nominated to receive your pension on death. These nominations were often set up years ago and never revisited. With the rules changing, it is worth asking whether the people named, and the order they are named in, still make sense for your wider estate plan. We will have this information for any plans we manage on your behalf.
Third, think about the order in which you draw on your assets. Many people have been advised to spend other savings first and preserve their pension for as long as possible. That approach may need revisiting.
At your annual review, we can help you build a clearer picture of your overall estate and how it may change over time, including how much you are likely to spend each year in retirement.
By using cashflow forecasts that allow for inflation, house price changes and investment growth, we can estimate the level of wealth you may leave behind and the possible inheritance tax your family could face.
That gives you the chance to make informed decisions, rather than relying on guesswork.
None of this needs to be decided today. But going into your review having thought about these three areas will make for a far more useful conversation, and a plan that reflects where things actually stand now.
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
Please note:
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate estate planning, cashflow planning or tax planning.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
Author: PFM Associates