09/05/2026
𝟲𝟳% 𝗧𝗮𝘅 𝗼𝗻 𝗜𝗻𝗵𝗲𝗿𝗶𝘁𝗲𝗱 𝗣𝗲𝗻𝘀𝗶𝗼𝗻𝘀: 𝗪𝗵𝗮𝘁 𝘁𝗵𝗲 𝗡𝗲𝘄 𝗟𝗮𝘄 𝗠𝗲𝗮𝗻𝘀 𝗳𝗼𝗿 𝗬𝗼𝘂𝗿 𝗙𝗮𝗺𝗶𝗹𝘆
The Finance Act 2026 received Royal Assent on 20 March 2026. With it, the long-discussed change to the way pensions are treated on death has moved from speculation to statute. For many families, pensions are about to become one of the least efficient assets to pass on, rather than one of the most.
It is worth taking the time to understand what is actually changing, and what the numbers look like in practice.
𝗪𝗵𝗮𝘁 𝘁𝗵𝗲 𝗹𝗮𝘄 𝗻𝗼𝘄 𝘀𝗮𝘆𝘀
From April 2027, unused pension funds will form part of the inheritance tax estate. Where the pension holder is over 75 at the point of death, beneficiaries who later draw on the inherited fund will also pay income tax at their marginal rate. The two charges fall in sequence on the same money.
That sequence matters. It is not one tax or the other. It is one followed by the other, with the second applied to what remains after the first.
𝗧𝗵𝗲 𝗻𝘂𝗺𝗯𝗲𝗿𝘀 𝗺𝗼𝘀𝘁 𝗳𝗮𝗺𝗶𝗹𝗶𝗲𝘀 𝗵𝗮𝘃𝗲 𝗻𝗼𝘁 𝘆𝗲𝘁 𝗿𝘂𝗻
Take a £500,000 pension intended for adult children. Under the new rules, an inheritance tax charge of 40 per cent could reduce the fund to £300,000 before the children see any of it. If those children are higher rate taxpayers, income tax on the remaining amount could leave the family with around £165,000.
A combined effective rate of 67 per cent is not a worst case projection. It is the outcome the legislation produces for a fairly typical scenario.
𝗪𝗵𝘆 𝘁𝗵𝗶𝘀 𝗺𝗮𝘁𝘁𝗲𝗿𝘀 𝗻𝗼𝘄, 𝗻𝗼𝘁 𝗶𝗻 𝗔𝗽𝗿𝗶𝗹 𝟮𝟬𝟮𝟳
The temptation is to wait. The implementation date is more than a year away, and the rules feel distant. The risk in waiting is that the better planning options usually need time to put in place, and time to bed in. Reviewing nominations, restructuring how a pension is drawn, considering the wider estate alongside the pension rather than in isolation: these are not last-minute decisions.
Equally, not every client needs to act. For some families, the existing arrangements remain sensible even after the change. The point is not that everyone should reorganise their affairs. The point is that every affected family should now understand the actual numbers, and make a deliberate choice rather than an accidental one.
𝗔 𝗽𝗲𝗻𝘀𝗶𝗼𝗻 𝗿𝗲𝘃𝗶𝗲𝘄 𝘁𝗵𝗮𝘁 𝘁𝗮𝗸𝗲𝘀 𝘁𝗵𝗲 𝗻𝗲𝘄 𝗿𝘂𝗹𝗲𝘀 𝘀𝗲𝗿𝗶𝗼𝘂𝘀𝗹𝘆
If you would like to know how the Finance Act 2026 affects your own position, and what your realistic options are, we offer a no-obligation pension review with one of our advisers. The review covers your pension structure, your wider estate, your beneficiaries, and the planning options that genuinely fit your circumstances.
