Pension Estate Report
Pension Estate Report
Your pension, and what happens to it after April 2027.
From 6 April 2027, most unused pension funds and death benefits fall within the estate for inheritance tax, with the spouse exemption applying as usual. For many people it is the largest single thing they leave behind.
If you die at seventy-five or over, whoever inherits also pays income tax as they draw it down, so the two taxes compound on the same pot. Die before seventy-five and the income tax does not arise, so it is inheritance tax alone. Drawing it yourself and paying income tax at 45% is two thirds of the 67%, but only if the money then leaves your estate. Left in the bank it faces inheritance tax too, which is why the report models drawing to fund gifts, not drawing alone.
This report models your position over the next twenty years under four approaches: leaving things as they are, drawing to fund regular gifts, drawing more to fund substantial gifts, and a mixture. You get a clear comparison of how much reaches your family.
This report is for you if
- You have a pension you have not needed to draw on.
- You and your spouse do not expect to spend all of it.
- You want to know what April 2027 does to it.
A worked example
Take £100 of pension left to a child on a death at seventy-five or over. Inheritance tax takes 40%, leaving £60. Income tax at 45% is another £27, so £33 reaches the family and 67% goes in tax.
| Up to £2m | £2,000 |
| £2m to £3m | £3,000 |
| £3m to £4m | £4,000 |
| Above £4m | 0.1% |
| Where the report covers a couple, add | 50% |
An estate of £6m falls in the top band, so the fee is 0.1% of the whole £6m, which is £6,000.
Mercian Accountants Ltd is not authorised or regulated by the Financial Conduct Authority, so decisions about the pension arrangements need an independent financial adviser.
Related tax planning reports
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