State pensioners and individuals aged over 55 are facing the prospect of significantly higher tax bills under new inheritance tax (IHT) rules, with payments required within six months of death. The changes, set to take effect from April 2027, mean that unspent pension pots passed to anyone other than a spouse or civil partner will be taxed at 40% for the first time.
New Tax Rules for Pensions
Under the Labour government's pension inheritance tax raid, thousands of families could be caught off guard by a little-known six-month deadline to settle the tax bill. Steve Gauke, Managing Director of Provira, told GB News: "Any pension wealth left to anyone other than a spouse or civil partner could be subject to 40% taxation - payable within 6 months of death." He warned that for many families, this bill will come as a complete shock, as pensions have not historically been subject to IHT.
Challenges for Executors
If the pension pot pushes the estate over the £325,000 threshold, executors face a difficult position. IHT must be paid before probate is granted, but probate is needed to release assets. Gauke explained: "That means if there's no cash in the estate, they're stuck. It's a tricky situation with options for executors limited to: a payment plan with HMRC, a personal loan or using their own money to cover the cost."
Urgent Advice for Pensioners
Gauke urged: "Prepare, seek professional support now and take the time to fully understand these changes. The more informed you are, the better placed you'll be." Thousands of people aged 55 and over are already rushing to withdraw money from their pensions amid fears their families could face large inheritance tax bills. Baroness Ros Altmann, a former pensions minister, said: "Bereaved loved ones will face the nightmare, expense and personal risk of trying to trace the pensions, work out the estate value, and make tax payments within just six months." She added: "The policy as proposed is not only unfair but will prove unworkable."
