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If you’ve inherited a pension from a loved one and already have an inheritance tax problem you should consider advice around gifting out of normal income and expenditure to avoid huge tax problems in April 2027 when legislation changes.
This is because in April 2027 pensions are included in your estate for the assessment of inheritance tax. Taking this into account, proactive planning is essential to help avoid paying unnecessary tax.
Gifting funds on a regular basis is immediately outside of your estate provided it doesn’t impact your standard of living.
Example - based on someone passing away after April 2027
No action taken
Inherited pension - £250,000
Inheritance tax - 40%
= £100,000
Proactive planning taken
Inherited pension - £250,000
Regular gifting- £83,333 x 3 years
Inheritance - Nil
Having a bespoke Cashflow Model in place can provide comfort with this planning. It will give an oversight on whether you can afford to gift funds away and support any action taken to help avoid unnecessary tax.
There’s key aspects to consider in record keeping from an audit perspective but at Priority Wealth Planning we can help with this.
The above example is based on an inherited pension being paid tax free and the original member passing away before age 75.
This is not advice as everyone’s individual situation is different. I would encourage a full assessment from a qualified adviser to help with this.
Please note that the Financial Conduct Authority do not regulate tax planning.
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