By Tegan Gladman, Financial Planner with Anstee & Co.
From the 6th April 2027, significant changes to pension death benefits and inheritance tax (IHT) will come into force. Under the new rules, most unused pension funds and pension death benefits will form part of your estate for IHT purposes, meaning pensions may no longer provide the same inheritance tax advantages they do today.
For many people, this could increase the value of their taxable estate and potentially result in a higher inheritance tax liability. However, the existing spouse and civil partner exemption will remain available. This means benefits passed to a surviving spouse or civil partner are generally exempt from IHT.
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Your Pension Death Benefit Options:
Defined contribution pensions can allow beneficiaries to receive death benefits in a number of ways, including:
- A lump sum payment.
- Beneficiary drawdown, where funds remain invested within a pension and can be withdrawn as needed.
- Beneficiary annuity (in some circumstances).
For beneficiaries of those who die after age 75, the pension is chargeable to income tax on the beneficiary’s marginal tax rate. This can make beneficiary drawdown particularly useful, as it allows the beneficiaries to only withdraw the funds they need and provides the flexibility to manage their own tax position more effectively.
After the 6th April 2027, the above options will still apply. However, the funds will also become subject to IHT.
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What Should You Do Before 2027?
While the rules are changing, there are several steps worth considering:
Review and update your pension beneficiary nominations.
Pension providers and trustees rely heavily on these nominations when deciding who should receive your benefits. Keeping them up to date can help ensure your wishes are followed and reduce delays for your family.
Check if your pension allows beneficiary drawdown.
Beneficiary drawdown isn’t always available on older pension plans. Having full death benefit options available to your beneficiaries allows them to choose the best outcome for their needs and can drastically improve the tax efficiency of inheriting the funds.
Consider consolidating multiple pension arrangements.
If appropriate, combining several pensions into one plan can simplify administration for your beneficiaries. It may also make the estate administration process more straightforward, as there will be fewer providers involved when assessing and settling any IHT liability.
Discuss inheritance tax planning with your financial adviser.
Everyone’s circumstances are different. An adviser can estimate your potential
IHT liability and recommend suitable strategies to help mitigate it. Depending on your circumstances, there may be a range of planning opportunities available to reduce the impact of inheritance tax and improve the efficiency of passing wealth to future generations.
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How Anstee & Co. can help you with Pension and Inheritance Tax planning.
With the 2027 changes approaching, now is an ideal time to review your pension arrangements and wider estate planning to ensure they remain aligned with your objectives.
We are Independent Financial Advisers (IFA’s) registered with the FCA. This means, above all, that the advice we offer is unbiased. All our financial advisers have the relevant professional qualifications needed to help you. If you would like a review of your Pension and Investments why not
arrange a meeting today. Also, the first “getting to know you” meeting is at our cost and is without obligation.
Our Head Office is located at-
- Kettering, Northamptonshire
Additionally, our advisers live and make use of meeting rooms in-
- Market Harborough, Leicestershire
- Bedford, Bedfordshire
- Northampton, Wellingborough and Thrapston all in Northamptonshire.
Also, we make full use of video conferencing facilities such as-
We can also arrange a conference call. The choice is yours. There is no need to visit an office as all work can be handled remotely.
If you have any thoughts or views on this article, “Pension and Inheritance Tax: What’s Changing?”, then we would love to hear from you.
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Finally, the information contained in this article is for information purposes only and does not constitute financial advice. Anstee & Co. is authorised and regulated by the Financial Conduct Authority
(FCA).