The chancellor has announced that inherited pensions will be subject to inheritance tax (IHT) from 2027.
The current inheritance tax threshold will also be extended to 2030 (having been in place since 2009). The first £325,000 of an estate remains IHT free, increasing to £500,000 if the estate includes a residence passed to a direct descendant.
Bringing pensions into IHT could change the way they are used in the long-term. There may be little incentive to pass on pensions with some choosing to draw from them to fund their own retirements instead.
Note that this will mainly affect private pensions which can be passed to descendants. Defined benefit schemes such as the NHS Pension should not be included as usually they are passed to a spouse.
A consultation on this policy has been launched which is due to conclude in January.
