Recent legislative shifts have stirred concerns regarding the inheritance tax on pensions.
- Chancellor Rachel Reeves announced that pensions passed on will incur inheritance tax from 2027.
- Previously, passing on pensions free of inheritance tax was a common practice for wealth succession.
- The removal of inheritance tax exemptions introduces a dual tax burden for beneficiaries.
- Existing spouse and civil partner exemptions remain unaffected by these changes.
The recent announcement by Chancellor Rachel Reeves has drawn significant attention towards the upcoming changes in inheritance tax (IHT) regulations concerning pensions. Set for implementation from 6 April 2027, these changes indicate that pensions bequeathed to non-spousal heirs will be subject to inheritance tax, thereby altering the landscape of financial planning for future generations.
Historically, individuals have utilised pensions as a tax-efficient means to transfer wealth, capitalising on the opportunity to pass these on without the burden of inheritance tax. However, with the confirmed policy shift, such financial strategies might require re-evaluation. Beneficiaries of such pension pots are likely to encounter a compounded tax liability, although exemptions for spouses and civil partners are to remain intact, ensuring some familial protections under the new regime.
Jon Greer, head of retirement policy at Quilter, expressed that this removal of IHT exemption for pensions “will come as a blow to many,” highlighting the potential financial strain it may place on families. The impact is particularly pronounced for those inheriting substantial pension savings, where the tax implications could lead to notable reductions in transferred wealth. As families confront these looming fiscal challenges, strategic financial planning becomes paramount to mitigate adverse outcomes.
These impending tax changes necessitate reconsideration of pension strategies to adapt to the evolving fiscal landscape.
