"Pension Tax Alert for UK Expats: Understanding the 2027 Changes"

"Pension Tax Alert for UK Expats: Understanding the 2027 Changes"

Annette M Houlihan Annette M Houlihan

Annette M Houlihan

Trusted International Estate Planner | 40+ Years in Cross-Border Estate & Financial Planning | Founder, Carey Suen | Securing Peace of Mind for 600+ Clients | Promoting Financial Freedom via Passive Income

发布日期: 2025年3月12日
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Starting April 6, 2027, most unused pension funds and death benefits will be included in a person's estate for Inheritance Tax purposes in the UK.?

This change will significantly impact UK expats, as their pension savings may now be subject to IHT, potentially increasing their overall tax liability and reducing the amount they can leave to beneficiaries.

The new rules will apply to both UK registered pension schemes and Qualifying Non-UK Pension Schemes (QNUPS), affecting a wide range of expats with various pension arrangements.

Key Changes

From April 6, 2027, most unused pension funds and death benefits will be included in the value of a person's estate for IHT purposes. This marks a departure from the current system, where defined contribution pensions typically sit outside the taxable estate.

Impact on Expats

  1. Increased Tax Liability: Many expats may face higher IHT bills on their UK pensions.

  1. Double Taxation Risk: Beneficiaries could face both IHT and income tax on inherited pensions, potentially reaching combined tax rates of up to 67%.

  1. Threshold Freezes: IHT thresholds will remain frozen until 2030, potentially increasing tax burdens over time.

Example Scenarios

  1. Modest Estate: Emily, a UK expat, has an estate worth ￡1 million, including a ￡500,000 pension.

  1. Larger Estate: John, a widower expat, has an estate of ￡1.7 million and a ￡1 million pension pot.

What Expats Can Do

  1. Review estate plans with a professional advisor familiar with international tax laws.

  1. Consider drawing down more from UK pensions before 2027 to reduce taxable amounts.

  1. Explore alternative tax-efficient investments in your country of residence.

  1. Implement gifting strategies to reduce your UK taxable estate.

  1. Investigate how local tax treaties might affect your pension inheritance.

Additional Considerations

  • The changes apply to both UK registered pension schemes and Qualifying Non-UK Pension Schemes (QNUPS).
  • Transfers to Qualifying Recognised Overseas Pension Schemes (QROPS) may face additional scrutiny and potential charges.

Don't let these upcoming tax changes catch you off guard. Secure a free consultation with me to discuss how these changes may affect your current plans and ensure your financial future is secure.?

Remember, if you pass away with a significant pension balance intact, it could now be included in your estate and subject to Inheritance Tax liabilities. Planning ahead is key to protecting your wealth for future generations

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