28/08/2026
From April 2027, unused pension wealth will fall within the scope of Inheritance Tax for the first time. For many clients, the implications are more severe than they realise. Where a pension member dies aged 75 or over, inherited funds face a potential double charge: 40% IHT on the estate, followed by income tax on the remaining pension at the beneficiary's marginal rate.1 For a higher rate taxpayer that combination reaches 64%, and for an additional rate taxpayer, 67%.
The situation can be worse still. Where adding an unused pension to an estate pushes the total value above £2 million, the residence nil-rate band begins to taper and can be lost entirely above £2.35 million. In some scenarios, this means the effective tax rate on an inherited pension fund could reach close to 90%, leaving beneficiaries with only a fraction of the original pot.
The time to act is now. With a two-year qualifying period required for Business Relief, clients who begin planning today will be best placed ahead of the April 2027 changes
