A recent statistic published in IFA Magazine revealed that 20% of wealthy over-55s are unaware that their pensions are set to become liable to Inheritance Tax (IHT) from April 2027.
Honestly? As an independent financial adviser, I thought that figure would be even higher. It highlights a crucial and costly advice gap. However, there is another critical, often-missed deadline you may want to be aware of: Reaching the age of 75.
If you haven't taken your tax-free lump sum (also known as the Pension Commencement Lump Sum) from your pension before you reach age 75, upon death after 75, your beneficiaries will not be able to access any tax-free element and will pay tax at their marginal rate on any withdrawals.
Let's put a number on that risk:
If you have a pension pot of £1,000,000, your potential tax-free lump sum is up to £250,000 (25%).
If you pass age 75 without taking this sum and after death your beneficiaries withdraw it:
• That £250,000 is no longer tax-free.
• If you are a basic rate (20%) taxpayer, you could now be paying the government £50,000 in income tax on that withdrawal (£250,000 x 20%).
Missing the age 75 deadline can mean unnecessarily leaving thousands on the table!
The takeaway is simple: If you are heading towards the 75-age bracket (or perhaps your parents are) and have not fully reviewed your pension and IHT strategy, don't delay.
Proactive advice now is the only way to ensure your pension wealth is protected, optimised, and passed on to your loved ones efficiently.
Make sure you talk to an adviser today.
Disclaimer: Tax laws are subject to change and individual circumstances vary. The above is a simplified example for illustrative purposes only and should not be taken as financial advice. Always consult a qualified adviser.
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