Overview
- HMRC confirmed on Monday that unused pension pots will be treated as part of estates for inheritance tax purposes from April 2027.
- Analysis by NFU Mutual shows worked examples where the interaction of IHT, the tapered residence nil‑rate band and post‑75 income tax could consume about 91% of a £700,000 pension pot and about 93% under Scotland's higher top rate.
- The mechanics driving those results are simple: a £325,000 nil‑rate band and a £175,000 residence band can be eroded by adding pensions to estate totals, IHT charges 40% above allowances, and pension withdrawals after age 75 can be taxed as income, stacking the levies.
- Advisers warn pensions will not automatically get the same reliefs as other assets and may be discovered after an estate is settled, which could force estates to be reopened and leave beneficiaries facing unexpected bills years later.
- Financial planners are urging immediate action such as reviewing estate plans, checking and documenting all pension arrangements, and considering taking the tax‑free lump sum before age 75, while HMRC receipts data for April–July shows IHT receipts at £3.2bn reflecting a wider rise in IHT liabilities.