Lucy Warwick-Ching and Roula Khalaf discuss the complex pension inheritance rules changing in April 2027. A couple in their early seventies with children from previous marriages questions how to pass on their sizeable pension pots. The article examines the tension between providing financial security for a surviving spouse and ensuring fairness to children from prior relationships under the new inheritance tax rules.
Sarah Hogan from KBA Financial explains that leaving pensions to a surviving spouse offers tax efficiency, as spouse-to-spouse transfers are generally exempt from inheritance tax. However, this may exclude the deceased's own children. Alternatively, leaving pensions directly to children may feel fairer in blended families, but from April 2027, unused funds will fall within the estate for IHT purposes, potentially facing a 40 percent tax charge. The article outlines strategies such as utilizing the £325,000 nil-rate band, making lifetime gifts from surplus income, or combining pension withdrawals with life insurance policies held in trust to balance these competing interests.
The discussion highlights that there is no single right answer, emphasizing the need to balance financial security, fairness, control, and tax efficiency. Financial experts recommend reviewing pension nominations, wills, and gifting plans in light of the upcoming rule changes rather than considering pensions in isolation.
Key entities: Lucy Warwick-Ching, Roula Khalaf, Sarah Hogan, KBA Financial, The Openwork Partnership
Key numbers: £325,000, 40 percent, April 2027
Source: Financial Times Companies · Summarized by HeadlinesBriefing