In the 2024 Autumn Budget, Chancellor Rachel Reeves announced that, from 6 April 2027, unused pension savings may be considered part of your estate for Inheritance Tax (IHT) purposes. To help you pass on your money in the most effective way to your loved ones, speak to one of our expert advisers today.
Things You Need to Know
– These changes are not yet final and will take effect from 6 April 2027.
– Most estates—comprising all property, money, and assets owned by an individual at the time of their death—will not incur additional Inheritance Tax (IHT), as they will remain below the current thresholds.
– If you have already accessed your pension savings, these changes will not affect you.
– Pensions are designed to support your retirement and remain a tax-efficient way to save.
How We Can Help
Pensions have traditionally served as a means to support you and your family during retirement, with the remaining funds often transferred to your loved ones upon your passing. However, starting in April 2027, unused pension funds and death benefits will be included in your estate for Inheritance Tax (IHT) purposes. This change means that pensions will be subject to IHT, potentially increasing the tax burden on your estate.
If your estate may exceed the Nil Rate Band (NRB), which is currently £325,000, with a joint rate for couples of up to £650,000, contact our expert advisers for a personalised, free no-obligation online consultation to explore your options.
Pension savings is important to:
- Financial Security in Retirement – Ensure you have enough income to support the lifestyle you desire.
- Tax Efficient Savings – Benefit from tax relief and tax free growth.
- Protection Against Inflation – Pension savings protect against inflation by investing in assets that typically grow over time, preserving purchasing power and ensuring long-term financial security.
- Support for Dependents – Provide your loved ones with financial security beyond your lifetime.
Ready to Discuss Your Pension Options?
Take the first step towards securing your family’s future today. Contact one of our expert financial advisers to receive a free, no-obligation 1-hour online IHT consultation. Pareto Financial Planning is authorised and regulated by the Financial Conduct Authority (FCA). We are also recognised as one of the Financial Times Top 100 Financial Advisers in the UK for 2024, as well as named in Citywire’s prestigious New Model Adviser Top 100.
Concerned your Pension could push your estate over £1million? Contact an adviser
FAQs
What is IHT, NRB, RNRB?
Inheritance Tax (IHT) is the tax payable on the estate of a deceased person, including property, money, and possessions.
There’s normally no IHT to pay if either:
- The value of your estate is below the current £325,000 threshold, also known as the Nil-Rate Band (NRB).
- You leave everything above the £325,000 threshold to your spouse, civil partner, a charity or a community amateur sports club.
The Nil-Rate Band is frozen until April 2028, with IHT potentially charged at 40% above this threshold, it’s therefore crucial to understand how this tax may affect your loved ones’ inheritance.
One significant relief that has gained prominence in recent years is the Residence Nil-Rate Band (RNRB).
This additional allowance applies when passing on a main residence to direct descendants, such as children or grandchildren. It provides an additional nil-rate band (where an individual died after 6 April 2017), owning a residence which they leave to direct descendants.
Currently, the maximum RNRB available is £175,000, frozen until April 2028.
Just like the standard NRB, any unused RNRB on the first death of a married couple or registered civil partners has the potential to be transferable even if the first death occurred before 6 April 2017. However, the RNRB does come with conditions and so may not be available or available in full to everyone.
Where an estate is valued at more than £2,000,000, the RNRB will be progressively reduced by £1 for every £2 that the value of the estate exceeds the threshold. Special provisions apply where an individual has downsized to a lower value property or no longer owns a home when they die.
How might this affect me?
From 6th April 2027 any unused pension savings could be included in IHT calculations if your estate exceeds the tax-free thresholds.
The vast majority of estates however currently don’t pay IHT, and this is expected to remain the case.
What is unused pension?
An unused pension is one that has not been accessed to generate an income, such as through purchasing an annuity. This typically includes both savings remaining in your pension pot and funds allocated to a Flexi-Access Drawdown (FAD) account, also known as ‘Drawdown.’
Who will be responsible for reporting and paying the IHT?
Currently Personal Representatives (PRs) are responsible for reporting and paying any Inheritance Tax due on unused pension funds and death benefits, however, this will be changing to Pension scheme administrators (PSAs) from 6th April 2027, and they will become liable.
When will the new changes take place?
The new changes will take place from 6th April 2027, which gives you 2 years to make the changes you require.
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