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Inheritance Tax Changes 2027: IHT and Your Pension

Inheritance Tax Changes 2027 - IHT and Your Pension

What’s Changing with IHT Rules in 2027 – And Why You Should Act Now

For many years, people have viewed pensions as a tax-efficient way to pass on wealth to loved ones. From 6th April 2027, however, new inheritance tax (IHT) rules will take effect, and these changes could significantly impact your IHT liability.

Last month, the UK government confirmed legislation that sees unused defined contribution pensions becoming subject to Inheritance Tax for the first time. Subsequently, this now means that your pension could face a 40% tax charge upon death.

What’s Changing with IHT?

Currently, HMRC treats unused pensions as outside your estate for IHT purposes. But from April 2027, the new legislation will include unused defined contribution (DC) pensions within your taxable estate. Additionally, these rule changes will see the pension scheme administrators becoming liable for reporting and paying any IHT due on pensions to HMRC.

The biggest hit – Individuals could face a potential 40% tax liability on pension savings passed to heirs where the total estate value exceeds the IHT threshold.

When Do the New Rules Take Effect?

These changes will apply from 6th April 2027. With this in mind, individuals should use this time to consider estate plans in response to these upcoming changes taking steps to compliantly reduce or eliminate IHT exposure.

Safeguarding Your Pension

Many individuals are likely to be unaware that their pension, long considered outside the scope of tax, could now push their estate over the IHT threshold. If your pension remains untouched into retirement, it could face a significant tax charge, leaving your family with a significant tax bill.

As we approach April 2027, you should take this time to review your current pension and overall value of your estate. Now is the time to seek professional guidance to consider tax planning opportunities to reduce your IHT charge.

Preparing for 2027 Inheritance Tax Changes

Need some guidance on your tax position? Our IHT specialists can help you assess your exposure and build a personalised plan that protects your wealth.

Book a free 20-minute IHT consultation today.

Author
WTT

By WTT

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