Pensions What the new IHT rules could mean for you

How will the new rules work?

- Rupert Jones

How will the new rules work?

Pensions tend to be outside people's estates for inheritance tax purposes, but last autumn Rachel Reeves announced that money left in a defined contribution (AKA money purchase) pension after a person's death would be pulled into the IHT net from April 2027.

Most workplace pensions and all private pensions are defined contribution. The changes mean "unused" pension savings could be taxed as part of someone's estate if it exceeds the IHT threshold.

Unused funds are money in a pension pot that has not been used to claim an income, such as buying an annuity, explains The People's Pension, a provider.

IHT is a tax paid on someone's assets after they die if they leave enough to go above a certain threshold. The standard IHT rate is 40%, and it is charged only on the part of the estate that is above the tax-free threshold, which is £325,000. (There is a separate threshold for homes.)