Pensioners face inheritance tax shock as unused savings to be taxed from 2027

Millions of retirees are faced with a surprise inheritance tax bill due to a change in the rules for defined contribution pensions.

New inheritance tax rules for pensions from 2027

From April 2027, money left in a defined contribution pension after death will be included in the inheritance tax (IHT) net, affecting middle-income families. Currently, pension savings are not part of the estate for IHT purposes.

Financial advisors are reporting a surge in planning and gifting to minimize the tax hit, with options including spending more, buying annuities, making tax-free gifts and paying off grandchildren's student loans.

Unused pension savings, not used for an income, could be taxed as part of someone's estate if it takes the total value above the IHT threshold of £325,000. The standard IHT rate is 40% on the part above the threshold.

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