Inheritance tax

Inheritance tax, known as IHT, is a tax that's charged on your estate (for example, your property, money and possessions) when you die. There is normally no tax to be paid if the value of your estate is below the IHT threshold of £325,000 (2018/19) or if you leave everything to your spouse or civil partner.

The amount that your beneficiaries pay can be affected by some of the decisions you make about your pension pot, or how you use any money released from your home with  a lifetime mortgage.

Tax treatment depends on each individual's circumstances and may change in the future.

Inheritance tax and your pension pot

Your pension pot could provide important benefits to your dependents when you die. Different schemes have different rules, so it's important that you don't make any assumptions that they will be looked after. The right advice could stop your beneficiaries from having to pay inheritance tax.

What happens if I die before I retire?

If you haven't started taking an income from your pension pot, and die before you reach age 75, the value of your pension pot will be passed, tax-free, to your beneficiaries.They can take it as a tax-free cash lump sum or as tax-free income. If they delay making a decision on how to use the pot for more than two years after informing the pension provider of your death, they may have to pay tax. If they delay using the pot for more than two years after telling the pension provider of your death, they may have to pay tax. They may also pay tax if they withdraw lump sums after the same two year period.  Any tax is usually deducted before a payment is made to the beneficiary.

If you haven't started taking an income from your pension pot, and were to die age 75 or older, any payments made to your beneficiaries would be added to their income and subject to income tax in the year that they receive the money.

Both of these scenarios assume that the total value of your pension pot(s) is less than the Lifetime Allowance, which is £1,030,000 for 2018/19. Your beneficiaries will have to pay additional tax on anything over this sum.

If you're reading this because you have been bereaved, the Pensions Advisory Service gives you clear practical advice.

What happens to my retirement income product when I die?

If at any time you use some or all of your pension pot to buy a retirement income product then the amount any beneficiaries receive will vary depending on the product and options you chose.

It's important to think carefully and shop around before you buy any retirement income product to make sure you choose the product and options that best meet your needs.

What if I release equity from my home and give it to someone else?

If you give away the money you release from your home through a lifetime mortgage, the recipient may have to pay inheritance tax in the future.

Find out more about inheritance tax

Make sure you get as much guidance and advice as you need before you make any decisions about what's best for you.

To find out more about inheritance tax, visit the View - Money Advice Service.

Your next steps

Or take a look at

Pension options which look at the different ways which you can access your pension pot.