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New pension inheritance tax will hit thousands of British families

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Labour plans to add inheritance tax on private pensions starting in 2027‚ affecting over 20000 families. The new policy could cost grieving relatives around £65000 on average when inheriting pension savings

Rachel Reeves today shared plans to put inheritance tax on private pensions which will affect many british families. The new rules starting in 2027 will change how pension money passes to relatives after death (this is currently tax-free for under-75s)

A typical £100000 pension inheritance might cost families up-to £65000 in total taxes: The changes mean people will pay both income tax and inheritance tax at the same-time. For example someone earning £50000 yearly who gets a £100000 pension could pay £40000 in inheritance tax plus £25946 in income charges

The Chancellors decision to levy inheritance tax on private pension inheritance is a particularly cruel and capricious means of raising revenue

John OConnell‚ TaxPayers Alliance

The policy affects around 8% of estates yearly which means:

  • 50660 families hit by new rules
  • 22860 extra estates paying inheritance tax
  • £107300 average pension pot for 55-64 age group

The good-news is that spouses and civil partners dont need to pay inheritance tax on inherited pensions; however other relatives will face big bills. Tom McPhail from The Lang Cat says this might change how people use their pensions - wealthy people could start taking more money out earlier or buy annuities instead of keeping cash in drawdown plans

The rules are different for inheriting from someone who dies before age-75 versus after: Currently theres no income tax if the person dies young but from 2027 theyll need to pay 40% inheritance tax if the tax-free allowance is used-up. This hits families who might not have done much financial planning

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