Overview
- Most unspent defined‑contribution pension pots will fall under inheritance tax from April 2027, with personal representatives responsible for paying any tax due on pension death benefits above existing allowances.
- Official projections indicate 10,500 estates will face inheritance tax for the first time in 2027–28 and 38,500 existing cases will see average bills rise by about £34,000.
- If a pension holder dies after age 75, heirs will pay income tax at their own rate on withdrawals from inherited pensions, which can push up the overall tax hit.
- Savers are already changing course, with 116,000 people aged 55 taking £2.3 billion in tax‑free lump sums in 2024–25 and more families using the £3,000 annual gifting allowance to trim future bills.
- From April 2027 the £20,000 ISA limit will be split into £12,000 fully flexible and £8,000 for investment ISAs, and income tax rates on interest will rise by two percentage points.