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Inheritance Tax and Pension Pots

Most people assume their pension sits outside their estate for inheritance tax. Until now, that’s largely been true. However, from 6 April 2027, that changes: most unused pension funds and death benefits will count towards the value of your estate for inheritance tax purposes for the first time.

If you hold a meaningful pension pot alongside property, savings or other assets, this change could bring your estate into inheritance tax for the first time, or increase a liability you already have.

Our Private Client solicitors can review your full estate (pension included) and advise on what to do before the change takes effect. We offer a free, no-obligation 30-minute consultation to start that conversation.

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THE CHALLENGE

What’s Changing, and Why It Matters

Today, most defined contribution pensions are held in a discretionary trust structure by the scheme, which is why they’ve generally fallen outside the deceased’s estate and outside inheritance tax treatment. From 6 April 2027, most unused pension funds and death benefits will instead be included in the estate for inheritance tax purposes, alongside property, savings and investments.

One detail that’s caught many people off guard: responsibility for reporting the value of your pension savings and paying any tax due will sit with your personal representatives (typically your executors if you have a Will) rather than the pension provider. That’s a change from what was originally proposed, and it means your executors will need full visibility of your pension assets, and may need to request valuations, coordinate with pension scheme administrators, and settle tax within tight statutory timeframes. Building this into your Will and wider estate plan now avoids leaving your family or executors to work it out under pressure.

AN ILLUSTRATION OF THE IMPACT

IHT of Up to £200,000

A £500,000 pension pot that currently sits outside your estate could, from April 2027, add up to £200,000 to your inheritance tax bill if it’s taxed in full at 40% with no other allowances available – the actual figure depends on your full estate, your available thresholds, and who inherits. We’ll calculate your specific position rather than a generic estimate.

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OUR SERVICES

How We Can Help You Plan for Inheritance Tax on Pensions

Pension and inheritance tax planning needs to sit alongside the rest of your estate plan, not in isolation. While we advise on all aspects of estate planning, we typically advise on the following aspects related specifically to pensions:

Reviewing Death Benefit Nominations

Making sure your pension provider’s records reflect who you actually want to benefit, and understanding how those nominations will interact with the new rules.

A Whole Estate Plan, Not Just Pensions

Reassessing your nil-rate band, residence nil-rate band and gifting strategy now that pensions may be pulled into the calculation, so nothing is double-counted or overlooked.

Trust Planning and Lifetime Gifting

Where appropriate, using trusts or lifetime gifts to manage the impact of pension funds being brought into your estate, in combination with your other assets.

Wills and Executor Guidance

Making sure your Will and letter of wishes give your executors clear instructions and the information they’ll need to report and settle any tax on your pension correctly.

OUR SIGNATURE SERVICE

Get an Initial Bespoke Inheritance Tax Planning Review for £495 +VAT

  • An initial fact-finding consultation with our team so we can understand which areas of your estate are incurring inheritance tax
  • A comprehensive written report with clear recommendations on how to mitigate your potential inheritance tax liability
  • A one-hour consultation with a senior consultant to talk you through your options and answer questions

This service gives you a clear, actionable inheritance tax plan built around your individual circumstances, so you know exactly where you stand and what to do next. Not sure it’s right for you yet? Start with our free 30-minute consultation instead.

Get My Bespoke IHT Report

INCOME TAX CHARGE ON DEATH

Will Your Pension Beneficiaries Also Pay Income Tax on Pension Benefits?

Inheritance tax isn’t the only tax that can apply to a pension when someone dies. Depending on your age at death and how the benefits are paid out, your beneficiaries may also need to pay income tax on the pension benefits they receive – a step that’s easy to overlook when the focus is on the incoming 2027 inheritance tax changes.

  • Before age 75: Your lump sum death benefit is tax-free up to your Lump Sum and Death Benefit Allowance (currently £1,073,100). Anything above it, your beneficiary must pay income tax on at their marginal rate.
  • Age 75 or later: There's no tax-free allowance at all. Your beneficiary must pay income tax in full on the lump sum death benefit, and the same applies to any pension benefits drawn as income instead.

From 6 April 2027, inheritance tax and income tax can both apply to the same pension funds. There’s a relief mechanism intended to prevent genuine double taxation, but how and when the inheritance tax is actually paid affects whether that relief is given automatically or has to be claimed back from HMRC afterwards. Getting the sequencing right, and making sure your executors know which payment route to use, is exactly the kind of detail that’s easy to get wrong without advice.

Generational Tax Planning

Inheritance tax doesn’t just affect your estate when you pass away. Without effective planning, your beneficiaries could face another round of tax when they leave their inheritance to the next generation.

Our solicitors specialise in generational tax planning, ensuring that wealth is passed down in a way that avoids it being taxed again and again. Through effective will structuring, trusts, and other strategies, we help you safeguard family wealth for your children, grandchildren, and beyond.

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HOW IT WORKS

Our Process

STEP 1

Fact-finding Consultation

We discuss your pension arrangements, your wider estate and your goals. No obligation, no charge.

STEP 2

Estate and Asset Review

We assess your full inheritance tax exposure, including how your pension is likely to be treated under the new inheritance tax rules.

STEP 3

Tailored Strategy

We recommend a bespoke plan, written in plain English, covering your pension alongside your property, savings and other assets.

STEP 4

Implementation

We update your Will, any trust arrangements and letter of wishes so your executors have clear instructions, once the inheritance tax changes take effect.

Also Planning Around Property, Gifts or a Business?

Pensions are only one part of your estate. We can review everything together (e.g., property, lifetime gifts, business or agricultural assets) so your plan works as a whole.

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WHY JONES WHYTE

Dual Qualified, Specialists in IHT Planning

Choosing the right firm is crucial to securing your family’s future and minimising tax liability. Experience with complex estates is crucial for solicitors handling inheritance tax planning. That’s exactly what you get with Jones Whyte. 

  • Experts in tax law - our expert advisers will keep you up to date on available tax reliefs and the most tax efficient strategies to protect your family's financial future.
  • Our Estate Planning team are dual qualified, meaning they are able to advise clients with assets all over the UK, not just Scotland.
  • Comprehensive estate planning - we provide the full range of estate planning services meaning you can manage your assets under one roof.
  • Transparent pricing - no hidden fees & hourly rates.

What Our Clients Say

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Inheritance Tax and Pensions FAQs

Generally not. For most defined contribution pensions held under a discretionary trust structure by the scheme, pensions have often been used as a tax-efficient way to pass on wealth. This changes from 6 April 2027, when most unused pension funds and death benefits will be brought into the estate for inheritance tax purposes.

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