From April 2027, pensions will be subject to inheritance tax, on top of the existing income tax on withdrawals for beneficiaries. Figures obtained through a Freedom of Information request show that:
31,200 families will be paying inheritance tax for the first time by 2030.
121,500 families already paying IHT will see their tax bills increase further.
How Much More Will You Pay?
Currently, inheritance tax is charged at 40% on estates worth over £325,000 (the "nil-rate band"). Pensions were previously a tax-efficient way to pass on wealth, but these new rules will change that completely.
📌 Example Tax Liabilities After 2027
A homeowner with a £300,000 property and a £100,000 pension could face an additional £30,000 in IHT.
If their pension is £300,000, the tax liability increases to £110,000.
Due to double taxation, some beneficiaries could face marginal tax rates of up to 90% on inherited pensions.
Why This Matters?
📉 Many people could be forced to draw down pensions earlier to avoid excessive taxation.
❌ It damages confidence in pension saving and planning.
💰 Families expecting to pass on hard-earned wealth may now face huge tax bills.
Richard Wilson, CEO of Interactive Investor, called these proposals "an affront to people who have done the right thing by diligently saving through a pension."
What Can You Do?
Financial experts suggest:
Reviewing your estate plan to ensure tax efficiency.
Exploring alternative wealth transfer strategies to reduce inheritance tax exposure.
Seeking professional financial advice to navigate these changes effectively.
With inheritance tax receipts already at record highs (£6.3bn in 2024), these changes pose serious challenges for pension planning.
💬 What do you think? Will this policy force you to rethink your retirement strategy? Let us know in the comments!
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