By Chandraketu Tripathi · Updated April 2026 · Fact-checked Tax · April 2026If you are over 55, own a home and have a pension pot, the inheritance tax landscape in 2026 is significantly more threatening than it was just a few years ago. Three forces are combining to pull more over-55s into IHT territory: rising property values, frozen thresholds and the inclusion of pension pots in estates from April 2027. Here is a frank assessment of your risk and what to do about it.
How to Calculate Your IHT ExposureAdd up the value of: your home (current market value), savings and investments, pension pot (from April 2027), personal possessions, and any other assets. Subtract your debts (mortgage, loans). If the total exceeds £325,000 (or £500,000 if your home passes to children or grandchildren), your estate may face IHT. If you are married, your spouse can inherit everything tax-free — but check whether you are maximising the combined £1,000,000 allowance available to couples. The Pension IHT BombshellUntil April 2027, unused defined contribution pension pots pass outside the estate for IHT — one of the most valuable estate planning tools available. From April 2027, this changes: unused pensions will be included in the estate and potentially face 40% IHT. For a 60-year-old with a £300,000 pension pot and a £400,000 house, the pension alone could add £120,000 to their IHT bill. Additionally, inherited pensions will face income tax when drawn by beneficiaries — creating a potential combined effective rate of 64-67% on inherited pension wealth. The urgency to review pension-based estate planning before April 2027 cannot be overstated. 💡 The most powerful immediate action for over-55s with pension pots: consider drawing down pension income earlier than planned and gifting the surplus to children or grandchildren. Money drawn from your pension reduces the taxable pension pot. Money gifted and surviving 7 years falls outside your estate. This dual benefit can significantly reduce your IHT exposure both before and after April 2027. Key IHT Planning Steps for Over-55sMake your annual £3,000 gift exemption every year without fail — and carry forward last year's if unused (up to £6,000 combined). If you have surplus income from your pension, consider regular gifting from income which is immediately exempt with no seven-year rule. Review your will — many people have outdated wills that do not make best use of the residence nil-rate band. Consider life insurance written in trust to cover an IHT liability. Seek regulated financial advice if your estate exceeds £500,000. ⭐ OUR VERDICT Over-55s with property and pensions face the most significant IHT changes in a generation. The pension inclusion from April 2027 is the most urgent issue — anyone with a substantial DC pension should take regulated advice now on whether to draw down more, restructure, or use alternative planning strategies. The window before April 2027 is limited. Start with your annual £3,000 gift exemption, review your will, and calculate your total estate value including pension pots to understand your true exposure. Frequently Asked QuestionsAt what age should I start worrying about inheritance tax? IHT planning is most effective the earlier you start. For most people, reviewing your position in your 50s gives the maximum time for seven-year gifting strategies to work. However, even starting in your 60s or 70s can make a significant difference — particularly for annual gift exemptions and regular gifts from income which are immediately exempt. Will my pension be included in inheritance tax from 2027? Yes. From 6 April 2027, unused defined contribution pension pots and lump-sum death benefits will be included in your estate for IHT purposes, subject to 40% IHT above the nil-rate band. Pensions passing to a surviving spouse or civil partner remain exempt. The change does not affect defined benefit (final salary) pensions in the same way — check with your scheme. Can I give my house to my children to avoid IHT? Giving your home to your children while continuing to live in it does not remove it from your estate for IHT — this is called a 'gift with reservation of benefit' and HMRC treats it as still being yours. To remove your home from your estate, you must genuinely vacate it and survive for 7 years after the gift. Seek legal advice before attempting to gift property. What is the residence nil-rate band? The residence nil-rate band (RNRB) is an additional IHT allowance of up to £175,000 per person when your main home is left to your direct descendants (children or grandchildren). Combined with the standard nil-rate band, this gives each individual up to £500,000 tax-free, and a couple up to £1,000,000. The RNRB is tapered away for estates worth more than £2,000,000. |
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