Pensions have, up to now, generally not been subject to Inheritance Tax. That position now looks likely to change.
What’s proposed from April 2027
From 6th April 2027, most unused pension funds are expected to be brought within your estate for Inheritance Tax purposes. If introduced, this would change how pensions are treated on death and how they are administered as part of an estate and will have a significant impact on tax planning.
The changes are likely to affect most defined contribution pensions and SIPPs, including uncrystallised funds and unused drawdown.
How this affects your estate and beneficiaries
The wider legal impact is significant. Where pension value pushes an estate above the threshold, inheritance tax may be payable at 40 percent and the
income tax consequence can also be severe. This may reduce what beneficiaries ultimately receive.
Responsibility for reporting and paying any Inheritance Tax on pension assets is expected to rest with personal representatives. This increases the burden on them and will add complexity to the administration of the estate.
Implications for executors and estate administration
Pension nomination forms remain critical. Both your Will and the nomination form need to be reviewed together to ensure a joined up estate plan.
This isn’t just about understanding the potential changes. It’s about ensuring your Will still delivers what you intend, without confusion, delay or unintended consequences for those left to administer your estate. The earlier this is reviewed, the more options remain available.
Why review your Will and estate plan now?
At Forrester Sylvester Mackett we ensure our client’s Wills, pension nominations and wider estate planning work together effectively. This includes reviewing how pension assets will be treated on death, checking beneficiary arrangements and ensuring estate structures remain workable for executors.
If pensions form part of your estate, now’s the time to get in touch. Speak to a member of our friendly and knowledgeable Wills, Trusts and Probate team today. We’ll put a clear, legally sound plan in place that protects your estate and reflects your future wishes.