My estate is going to exceed the available inheritance tax allowances, partly due to my pension pot.
I’m aware that from 6 April 2027, money left in the pension will form part of my estate when calculating the inheritance tax due.
If the money in the pension pot is used to pay inheritance tax, will this still be subject to income tax as well?
Allan from Yorkshire
‘The answer depends on what age you live to’
Samm Galloway, Which? money expert, says…
To recap, if a person is over the age of 75 when they die, then any money they leave in their pension is subject to income tax at the beneficiary’s marginal rate.
If a person dies before the age of 75, their pensions can be inherited free of income tax.
In either case, from April 2027 the pension will be counted as part of the deceased’s estate, but whether this leads to an inheritance tax bill depends on whether the estate’s value exceeds the various allowances.
If part of your pension is used to pay the inheritance tax directly, this would not be subject to income tax
If the estate doesn’t have enough cash to cover an inheritance tax bill, then this can be paid from pension savings. HMRC will set up a direct payment system, which allows the tax due (the proportional amount) to be paid directly from the pension pot. This is similar to what is already in place for banks and NS&I.
If part of your pension is used to pay the inheritance tax directly, this would not be subject to income tax.
Or, if the beneficiary takes the pension income and uses it to pay an inheritance tax bill, the income tax on this can be reclaimed.
- Find out more: will my pension be subject to inheritance tax?
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