Pensions post April 2027

Currently if you die before April 2027 and are under age 75, your pension will pass to your beneficiaries tax-free.

If you die before April 2027 and are 75 or over, 100% of your pension fund is taxable at the marginal rates of income tax of your beneficiaries. Retirees pay income tax on their pension income whilst they are living and your beneficiaries will continue to do so after you die.

The problem is that in April 2027, Inheritance Tax (IHT) will be charged against your pension fund, at a rate of 40%, yes, 40%. And if you die after 75, income tax will also be taken from any income that your beneficiaries receive from what's left of your pension fund.

For example, your £200,000 pension will be reduced to £120,000 and then your beneficiaries will pay income tax on any money they receive from the £120,000 pot at a rate of 0, 20, 40 or 45%.

Our view is that you should consider taking the tax-free cash from your pension after April 2027, or even before if you currently do not have an Inheritance Tax problem. Last year, many people took their cash (as there was a rumour it was going to be abolished) but regretted their decision. However this was because they either spent it or gave it to their children. We are generally NOT proposing this.

Everyone has a £20,000 ISA limit, so a couple could take £40,000 from a personal pension and re-invest it into a Stocks and Shares ISA and get exactly the same returns as that achieved in the pension. If you took 25% of a large pension fund, you would NOT be able to put it all in an ISA, so might occur capital gains tax if investing in a GIA.

Certainly, by the time you are 75, you should have taken all your tax-free cash from your pension, to avoid the double death tax from 75 onwards.

I thought I'd mention this now, to give you time to mull over it over the next few months.

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