Millions of British workers could be hit with an unexpected inheritance tax bill on their pension savings if they die after retirement, under potential new government rules.
The Pension Tax Trap
Currently, pension pots passed on before retirement age are typically exempt from inheritance tax. However, experts warn this valuable tax break may disappear for those who access their pensions first.
How the Changes Could Affect You
- Pensions accessed through drawdown could lose their inheritance tax protection
- Lump sum withdrawals might trigger tax liabilities for beneficiaries
- The 55% 'death tax' charge was abolished in 2015, but new rules could create similar issues
Why This Matters Now
With more people using pension freedoms to access their savings early, these changes could affect growing numbers of families. Financial advisers report increasing concern among clients about protecting their legacy.
Expert Warnings
"This could create a nasty surprise for many families," warns Sarah Coles, head of personal finance at Hargreaves Lansdown. "People need to be aware that taking money from their pension might change how it's treated after their death."
What You Can Do
- Review your pension withdrawal strategy with a financial adviser
- Consider the tax implications before accessing your pension
- Keep up-to-date with potential rule changes
The Treasury has not confirmed any immediate changes, but experts advise preparing for possible reforms that could significantly impact retirement planning.
