Pensions to form part of your estate from 2027

In the Autumn Budget 2024, Chancellor Rachel Reeves announced a significant change to the treatment of pensions for inheritance tax (IHT) purposes. Starting from 6 April 2027, most unused pension funds and death benefits will be included in the deceased’s estate for IHT calculations.

Current Position

Currently, defined contribution pensions are generally excluded from IHT, allowing beneficiaries to inherit pension funds without incurring this tax. This has made pensions a valuable tool for estate planning.

What’s Changing?

Under the new rules effective from April 2027:

• Unused pension funds will be considered part of the estate for IHT purposes.

• This change applies to both defined contribution and certain defined benefit pension schemes.

• Beneficiaries may face an IHT rate of up to 40% on inherited pension assets, depending on the total value of the estate.

Planning Considerations

This development underscores the importance of proactive estate planning. Individuals should review their retirement and inheritance strategies to mitigate potential tax liabilities. Options may include adjusting pension drawdown plans, considering alternative investment vehicles, or exploring trust arrangements.

At Reybridge Capital, we are committed to helping our clients navigate these changes and optimise their financial plans. Contact us to discuss how this policy shift may impact your estate and explore strategies to preserve your wealth for future generations.