Do you know how much of your pension your beneficiaries will receive?
Our free calculator helps you estimate how the planned changes to Inheritance Tax could affect the amount your beneficiaries receive from your pension and wider estate.
Enter the value of your other assets, your home and your pension pot, along with details about your spouse or civil partner and your beneficiary’s income tax rate. The calculator then compares what could pass to your beneficiaries under the current rules, with what could pass under the rules coming into effect from April 2027.
This can help you answer an important question: how could the changes to Inheritance Tax affect what my family inherits from my pension?
The result is an illustration rather than a calculation of your actual tax liability. Your circumstances, pension arrangements and the final rules in force at the time of your death can all affect the outcome.
What is changing with pensions and Inheritance Tax?
At the moment, most unused pension funds can generally pass to beneficiaries outside your estate for Inheritance Tax purposes, provided the relevant pension scheme and death benefit rules are met.
From 6 April 2027, most unused pension funds and pension death benefits will be included when calculating the value of your estate for Inheritance Tax. This means that a pension that could previously have passed to your beneficiaries without an Inheritance Tax charge could increase the value of your estate for tax purposes.
The changes are particularly relevant if you have a sizeable pension and other assets that could already bring your estate close to or above the Inheritance Tax thresholds.
The government has also confirmed that some pension benefits will be excluded from the changes, including death-in-service benefits from registered pension schemes.
How could the changes affect my pension?
If your pension is included in your estate, it could increase the amount of your estate that is subject to Inheritance Tax.
The standard Inheritance Tax rate is currently 40% on the part of an estate above the available tax-free thresholds, after applicable exemptions and reliefs.
For example, if you have a £600,000 pension that remains unused when you die, the way that pension is treated could make a significant difference to how much your beneficiaries ultimately receive.
The effect will depend on the size of your pension, the value of your other assets, any available allowances and exemptions, and your beneficiaries’ circumstances.
This is why looking at your pension alongside the rest of your estate can be more useful than considering the pension on its own.
Can I still leave my pension to my family?
The proposed changes do not mean that you cannot pass your pension on to your beneficiaries. The main change is how most unused pension funds and death benefits are treated for Inheritance Tax purposes from April 2027.
You can still nominate beneficiaries for your pension, and the pension scheme’s rules will determine who can receive benefits after your death.
It is therefore important to keep your expression of wish or beneficiary nomination up to date and check how your pension provider’s death benefit rules work.
Can I reduce the Inheritance Tax impact on my pension?
There may be different ways to plan for the changes, depending on your circumstances.
For example, you could consider:
- how and when you take income from your pension
- whether to use other assets before drawing from your pension
- how your pension fits alongside your ISA and other investments
- whether life insurance could help meet a potential Inheritance Tax liability
- whether gifting assets could form part of your wider estate planning
- how your pension and other assets could be passed to your spouse, partner or other beneficiaries
There is no single approach that will be suitable for everyone. Using your pension differently could affect your retirement income, investment position and the amount you leave behind.
This is why it can be useful to consider your retirement planning and estate planning together.
Should I speak to a financial adviser about pensions and Inheritance Tax?
A pensions in your estate calculator can be a useful starting point, but estate and pension planning can involve several different tax rules and decisions.
A regulated financial adviser can help you look at your pension alongside your other assets, retirement income and plans for passing wealth to your family. They can also help you consider options such as drawdown, gifting, life cover and how you use different assets during retirement.
If you would like help planning for the changes, you can use the Trusted Advisor adviser matching service to find a regulated financial adviser suited to your needs. Alternatively, email our team at hello@trusted-advisor.co.uk and we can help you understand the next steps.