A Surrey retiree’s untouched private pension of £762,000 would, his family says, now leave his son exposed to a bill running into hundreds of thousands of pounds. From April 2027 most defined contribution pension pots — including workplace and private personal pensions — will be treated as part of an individual’s estate for inheritance tax (IHT). That means unused pension savings can push an estate above the £325,000 nil‑rate band and attract 40% tax on the excess; transfers between spouses and civil partners remain exempt.

What is changing From April 2027 the government will treat money left in defined contribution pensions as part of an individual’s estate for IHT purposes. That reclassification means pension pots that were previously outside the IHT net can now push an estate over the £325,000 nil‑rate band and attract the standard 40% tax on the excess. When a home is passed to direct descendants the allowance can rise to £500,000 for one person or £1m for a couple. Who is affected and why it matters Advisers say the change broadens the group at risk. "What was once seen as a tax on only the wealthiest is now firmly a middle‑income issue," Rachael Griffin at investment firm Quilter said. Households that built pension savings expecting those pots to pass free of IHT may now find those savings are counted alongside property, savings and investments when tax is calculated. A retiree interviewed in the reporting, Martin Mathewson of Surrey, said his untouched private pension of £762,000 would now leave his son exposed to a potential bill running into hundreds of thousands of pounds. Immediate moves families are making Financial planners and wealth managers report clients are already changing behaviour. Reported actions include: - Increasing retirement spending — withdrawing pension money earlier to reduce the pot on death. - Accelerating lifetime gifts to reduce estate value. - Reconsidering how assets are left between spouses and children. Practical options advisers are discussing Advisers point to a handful of approaches being used to blunt the impact: - Draw down and spend pension money during retirement to reduce the taxable pot. - Accelerate gifting while the pension holder is alive (noting this can trigger other tax or access issues). - Buy an annuity to convert unused savings into an income stream, which can change how the funds are treated for IHT. Advisers caution none of these are universal solutions: gifting can affect eligibility for means‑tested benefits, drawing down pensions alters income and capital positions, and annuities lock capital into income. Any change should be weighed against health, longevity and personal plans. Administrative and tax‑trap concerns Reporting highlights possible additional complications, including extra paperwork and the risk of unexpected tax charges for beneficiaries. Families and advisers are examining whether current estate plans need urgent revision.

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The change takes effect in April 2027. "The time for planning is now," said Nicholas Nesbitt, partner at Forvis Mazars. Individuals affected should review their plans and consider seeking independent financial advice to understand the best steps for their circumstances.

This article was created with AI assistance.