Your Pensions Could Be Taxed at 40% From April 2027! Don't wait—book a free consultation today
📢 Your Pensions Could Be Taxed at 40% from April 2027! Don’t wait—book a free consultation today and safeguard your family’s financial future.
See how much you will pay using our free online Inheritance Tax (IHT) Calculator
The Inheritance Tax (IHT) Nil Rate Band is the threshold below which no liability is due. For single individuals, the current IHT nil rate band is £325,000. Couples can potentially double this allowance by combining their nil rate bands, increasing their threshold to £650,000, provided both have unused allowances at the time of the second death.
The Residence Nil Rate Band (RNRB) is an additional allowance that can be used to reduce the amount of IHT owed on an estate when a person leaves their main residence to direct descendants, such as children or grandchildren.
For the 2024/25 tax year, the RNRB is £175,000 per person, and like the standard Nil Rate Band (NRB), it can be transferred between spouses or civil partners. This means that couples can potentially pass on a combined total of £350,000 through the RNRB if both partners are eligible.
However, there are certain conditions for claiming the RNRB:
The deceased must have owned a property that was their main residence.
The property must be left to direct descendants, including children, grandchildren, or even stepchildren.
The RNRB can be tapered down for estates worth more than £2 million, reducing the allowance by £1 for every £2 over this threshold.
In addition to the basic Nil Rate Band, the RNRB can significantly increase the amount that can be passed on tax-free, especially for families passing down a home to future generations. The combined benefit of the Nil Rate Band and Residence Nil Rate Band means that, for qualifying estates, couples can pass on up to £1 million without paying Tax, assuming both allowances are fully utilised.
Was the amount of IHT to pay aligned to your initial thoughts, or a lot more?
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The 2027 Inheritance Tax Change – Pension Add In - What You Need to Know
In April 2027, pensions will no longer be tax-free and will be included in your estate, meaning your loved ones could lose 40% to HMRC. If you own property, savings, or investments, these changes will impact you.
✅ The Problem: The government is closing loopholes, meaning you’ll pay more IHT than ever.
✅ The Solution: With expert planning, you can legally reduce your tax bill and pass on more to your family.
📞 Book your free consultation now and get expert advice before the laws change!
In the Autumn Budget 2024, Rachel Reeves, the Shadow Chancellor, highlighted a significant change to the UK’s IHT rules.
She announced that pensions will be included as part of people’s estates for IHT purposes, meaning that these investments will be at the standard rate of 40% upon death.
This move aims to close a loophole and ensure that wealth accumulated in pensions is subject to the same inheritance tax treatment as other assets, potentially affecting many individuals’ estate planning strategies.
How We Can Help You
At Optimise Accountants, we specialize in wealth protection strategies for landlords, property investors, and high-net-worth individuals. In your free consultation, we’ll cover:
✔ How to legally reduce inheritance on your estate
✔ Pension and property saving strategies
✔ Setting up trusts to protect family wealth
✔ Gifting assets without triggering liabilities
📞 Book your free consultation now and get expert advice before the laws change!
Why Book a Free Consultation?
🏡 Keep More of Your Wealth – We’ll show you how to protect your estate legally.
📈 Expert Advice from Inheritance Tax Specialists – Trusted by landlords & investors.
🚀 Act Now Before the Rules Take Effect – The earlier you plan, the more you save!
🔒 100% Free & No Obligation – Just Expert Guidance!
📞 Book your free consultation now and get expert advice before the laws change!
Frequently Asked Questions (FAQs)
❓ Who needs inheritance tax planning?
Anyone with property, pensions, or savings who wants to protect their family’s future.
❓ How much can I save?
Our clients typically save tens of thousands of pounds through smart planning.
❓ Is this consultation really free?
Yes! Our 10-minute consultation is completely free and designed to help you understand your options.
Video Transcript
Hi everyone! My name is Simon Moscovitch from Optimize Accountants and in this video I am going to be talking about the 87% tax on pensions. That’s right, 87%. Now yesterday I launched a video talking about an 85% tax rate. And in that I left out some of the details because, well, I didn’t feel it was appropriate and it was a bit too much for some of our viewers. However, there were some people calling me out saying I’m not a good accountant should be advising my client. So for you in particular, enjoy this video because you’re right that it’s not 85%. In actual fact, it’s not less. As you said, it’s actually more. So let’s get into the detail of why I’m claiming that they tax is 87%. Now, before you do that, there are some interesting channels that I think you should be watching. If you have had enough of the you want to live or work abroad, then you might want to consider the Expat Channel, which will help you do that And the far right is moving to Marbella, Spain, which is where Louise and I are. And again, feel free to follow our journey as we’ve moved from the UK to Spain. If you want to download our free property guide, feel free to use that QR code currently showing on screen. But let’s get into the details and I’m going to give you a bit more narrative. So this video will be longer, which goes against my YouTube analytics that says most of you only watch these videos for four minutes, so be interesting to see which four minutes you actually watch.
And most of the critics I’ve noticed don’t read the entirety of the video, because some of the things that they were saying in those criticisms was actually in the video, but I’ve put that in this even more clearly. So UK pensions under the Labour Party autumn 2024 budget. Pensions will be subject to tax starting from April 2027. Further, currently unused pension pots can pass for a tax free if the individual dies before 35, which I think is horrific to pretty much ask someone to die before 75 for reasons, right? I’m not. I’m not suggesting they are saying that. But you can look at the just narrative. It just feels horrible. Anyway, so let’s have a look at what that really means. And it goes on to say this wasn’t included in previous video. In the UK, an individual can benefit from nil rate band NB, which exempts the first £325,000. This is going to come back quite heavily through this video of their estate for tax. Additionally, if the home is passed direct to descendants, they may qualify for the residential nil rate band R’n’B, providing up to an additional or extra 175,000 of relief. But there is a taper relief of this residential nil rate band Once assets gets over to 2 million, please do note this is what I’m going to be coming back with.
And this is why that the pension tax is going to be more than 85%. As I previously stated in my video. IHT is 40% on pensions. And why is that? The reality is that these will be subject to 4%, because the lifetime allowances may be used on other assets such as their home. So when this come into their estate, it may exceed the IHT lifetime allowances which are used on other assets and therefore will be taxed at 40%. But it’s not 40%. And I’m going to prove why. So net pension. Let’s have a look at this. So this is something I put in the previous video. And this is for receiving inheritance and specifically a pension. Now this doesn’t change across these tax rate payers at all. Pensions 100,000 across IHT charge £40,000 because of course it’s 4,040%. Net pension is £60,000. rate 40%. I think everyone follows that. I don’t think there’s any questions about that. But what I do want to focus on, and this is where it jumps up from 40% to 60%. And I’m going to clearly state why in this video, which I left out some of the details in previous videos. The residential nil rate band R’n’B is reduced by £1 for every £2 that the value exceeds 2 million. So if you think about your home and you think about investments, once they go over 2 million, you lose, you start to lose your residential nil rate band.
And that could be quite a piece of bad news. So what I want you to do is in the previous video I left this out, but because everyone was criticising it and saying, well, you didn’t give enough detail, blah blah blah, which guys, I know you’re going to be watching this video for four minutes, so probably not going to be watching this video either. Anyway, I’m going to put it in. And so this is the worst case scenario okay. This is a sensationalist piece I get it. But it can happen. And therefore some of the people watching this video, it will relate to them. For the vast majority it won’t. But I want to be sensationalized because I want you to pay attention that there will be a liability on you, not just to you, but your children or your grandparents or whoever has pensions and other forms of assets. I want you to just look around, not just you. You should look at upwards intensity of your parents, your grandparents, or even your children. Look all the way linear across your family because it will affect you at some point. So before this time, pension is zero, you might have £100,000 worth of pension, but it wasn’t taxable. After 2-0-2-7 it will be. So the variance the difference is 100,000. A home may be £2 million. Now again people will say well the average house price is 300,000. How is that going to affect people? I get it, this is not going to affect everyone, but I do want to show that the numbers stack up of why there is so much tax and the unsuspecting people that have quite good assets.
And I know there’s a lot of people who don’t like other people with assets. Guess what? Earn a living, get your own assets and build your own wealth. Don’t bring everyone down to your level. Go up to their level. Okay, so that’s my view on those critics. Critics out there that don’t like rich people. £2 million worth of home IHT released therefore, is £500,000 because you had your £325,000 normal lifetime allowance, plus £175,000 residential nil rate Nayarit banned, but because of that pension after this time becomes your pot, your assets exceeds those allowances. So now your IHT release is reduced by £50,000, which is £450,000 at total release. So to explain that which again, I didn’t put in my previous video because I know people won’t be here to watch all of this video, and that the HD release was £500,000 before the regime, but now we’ve got this tax on pensions. The release is £450,000, and that’s because you get the residential nil rate band reduces once you for £2 for every £1 over the £2 million mark complex I get it. Speak to your accountant if this affects you. So therefore the taxable assets subject to IHT used to be 1.5 million. Now it’s 1.650. Why 1.650. Well you have your pension which comes in which is the additional £100,000.
But because you lose your residential nil rate band, you also have an extra £50,000. Now that is taxable and in my view, that is a tax that should be attributed to retirement accounts and will follow this through. So taxable subject to IHT 1.5 million versus 1.65 variance of 150,000 IHT at 40% is 600,000 before the changes Once the changes come in adding in investments, the tax is now 660,000. Therefore the tax increase is an extra £60,000. Before I go on, I do want to and I know some people will criticise this sediment, but here you go. The extra IHT caused by the loss of the residential nil rate band will be paid out of the house proceeds once sold, not the pension. So you’re not decreasing the pension pot. You’re actually going to be paying the tax on the home. The pension pot will be transferred to you once the iht r 40% is levied against it, which means there’s extra tax caused by the Labour Party. So the pension of £100,000 is going to be transferred. However, you get the £40,000 deducted at source as a higher rate taxpayer. We can’t forget the additional residential nil rate band charge of 20,000, which are highlighted in previous slides, which means now the RT in my opinion is £60,000, attributed directly. As a result of these changes on that pension of £100,000. As a result, IHT effective rate in my opinion is 60%. Okay. So that is something that you need to swallow and you need to go through these numbers again.
So pause and rewind. So the net pension. So this is the 100,000 less the £40,000 that is deducted at source. Don’t forget the extra £20,000 caused by the loss of residential nil rate band is not taken into account here because that would be against the home. So the net pension received as the 100,000 less the 40,000 is 60,000. We are now going to look at three columns here the basic rate taxpayer, the high rate taxpayer and the additional rate taxpayer. So we’re looking at income tax now. And you’ll see here that the income tax payer for basic rate is 12,000 versus 24,000 for higher rate taxpayers and 27,000 for additional rate taxpayers. Net pension one less, the other 48,000, 36,030 3000. But it gets worse. This is the worst case scenario £100,000 pension, which has caused the issue of tax of 40,000 on the pension plus the £20,000 of loss of residential nil rate band, plus the income tax charge that you will be have to pay. So 40% is 60,000, not £40,000. Income tax is 12,020 4020 7000. Which the total tax rate as you can see bottom right says 87,000 which is 60,000 plus 27,000, which is £87,000. 87%. Okay. So there’s the details. That wasn’t included in my previous slides yesterday, which caused a lot of controversy and people saying I shouldn’t be an accountant. Well, there you go. So what can be done? Anyway, this wasn’t the point of being right or wrong. The whole point of this presentation was to say that you will be paying more tax, whether it’s 40%.
And let me just go back, actually, whether it’s 40% and you’ve got income tax charge of 20%, it is still going to be considerably higher than what it was. My point of this presentation, rather than getting into the semantics which people love to get involved in, which, you know, it’s unfortunate, is the fact that they missed the point of this presentation is the fact that it is about you paying a lot more tax than you ever did before. That was my point, and I’m still sticking to that point. I’m not overly concerned with the semantics of the details because it will vary between people anyway. And yes, I did state that some percent 85% yesterday, but I’ve now proven it’s actually 87%, which you can see here clearly. And these are my workings, which I didn’t include yesterday. But like I say, most people would have fell asleep by now or watched the cats on YouTube. I don’t mind which, but what can you do? This is my This is. I want you to take action. This is not about you being keyboard warriors and attacking that. If it doesn’t apply to you, fine. If it doesn’t apply to you. Great. If it does apply to you, any element of it, then you probably want to take some action. And some of the things you want to do is get some advice from a financial advisor. I’m not qualified to do so, but I do see other people take some actions.
