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Pensions
Pensions offer great tax advantages, but you will do well to remember that these are offered to solely encourage you to provide for your own retirement. A point the Chancellor reinforced in her 30 October Budget when she announced that, from 6 April 2027, any “unused pension funds” will be included in the value of your estate for Inheritance Tax purposes. Dissuading those who treat their pension funds as “for the kids”.

Pension contributions
Consider maximising your personal contributions to personal pension plans.
Maximising contributions in 2024/25 may be advantageous - depending on your past contribution pattern, it is possible to contribute up to £200,000 before 6 April 2025 and obtain tax relief on the whole sum.
Within your Annual Allowance:
- You can personally contribute up to 100% of your taxable employment income with Income Tax relief at your marginal rate, that is, up to 45%.
- You do not pay Income Tax or National Insurance Contributions on any employer pension contributions.
The Annual Allowance applies to the total of gross personal and employer contributions. For 2024/25 it is £60,000. For those on high incomes, the Annual Allowance might be tapered to as low as £10,000, "high" being income from all sources of over £360,000.
Unused allowances from previous years are available to carry forward into 2024/25.
Contributions in excess of the available Annual Allowance are subject to Income Tax - the Annual Allowance tax charge.
You will find more information in our Insight.
Maximising tax-free cash at retirement
6 April 2024 saw the abolition of the lifetime allowance and, with it, a UK tax ‘surcharge’ on UK pension retirement and death benefits in excess of the lifetime allowance.
One of the duties of the lifetime allowance was to limit the amount of tax-free cash that can be taken from your pensions. That role has now passed to the new “lump sum allowance”. Your new lump sum allowance from 6 April 2024 is a direct function of your unused lifetime allowance on 5 April 2024 – and intended, of course, to generally give the same tax-free outcome.
The standard lifetime allowance at 5 April 2024 of £1,073,100 gives rise to a maximum lump sum allowance from 6 April 2024 of £268,275. For those who previously arranged lifetime allowance protection and, so, had a higher lifetime allowance – for example Fixed Protection 2012 provided a lifetime allowance of £1.8m – their new lump sum allowance will be higher than the standard. For example, £450,000 for holders of Fixed Protection 2012.
In certain situations, it is possible to increase your lump sum allowance:
- If you do not have any lifetime allowance protection and you/your employer have not paid pension contributions for you since 5 April 2016, consider registering for Fixed Protection 2016 – that will give you a lump sum allowance of £312,500. You have until 5 April 2025 to apply.
- If you took some retirement benefits before 6 April 2024 but did not take as much as 25% of that as tax-free cash, or the standard lifetime allowance was less that £1,073,100 at the time, consider applying for a “Transitional Tax Free Allowance Certificate”.
You will find more information in our Insight.

Pension contributions for family members
Pensions contributions can be made by, or for, all UK residents, including children. So, consider making a net contribution of up to £2,880 (effectively £3,600 gross) each year for members of your family, even for those who do not have any earnings.
The earlier that these pension contributions are started, the more they benefit from compounded tax-free returns.
Employer pension contributions
Employers can make pension contributions on behalf of their employees. This is tax efficient as there may be no tax to pay on this benefit and the employer can claim a Corporation Tax deduction. If you own the company, this can be a tax-efficient way to extract value from it.
It is often worth setting up arrangements where employees give up (sacrifice) some of their salary in return for a larger pension contribution made by the employer. This saves on National Insurance Contributions that would have been paid by both employer and employee and the savings can be passed on as higher pension contributions.

Leaving your pension funds to your dependants
Current rules
If you die before age 75, there is, generally, no Inheritance Tax (IHT) on a lump sum or income paid from your defined contribution pension fund to beneficiaries. If you are age 75 or over when you die, payments made to your beneficiaries are taxed at the recipient’s marginal rate of Income Tax. So, if the payments are spread over several years, it may be possible for the recipients to avoid paying higher rate tax. It is important to make sure that the pension provider is aware of your wishes (in writing) so that your potential beneficiaries have maximum flexibility. Make sure that certain older style pension plans – “buy-out” policies and pre 1988 personal retirement annuity policies – are written in trust or they may be liable to IHT.
Lump sums paid on death before age 75 are subject to your “lump sum and death benefit allowance” – once again stepping in for the old lifetime allowance from 6 April 2024. You will find more information in our Insight.
From 6 April 2027
The Government proposes that, from 6 April 2027, the value of any unused pension funds and pension benefits paid on death be included in the value of your estate for IHT purposes. The IHT allowances and other exclusions continue to apply across the whole. The pension fund will then settle its pro rata share of the total IHT direct to HMRC.
It is intended that this applies to both UK registered and non-UK pension schemes.
The proposal is open to consultation, although the Government has said it is only consulting on the mechanics of personal representatives and pension scheme administrators collaborating in accounting for the IHT due. It is not consulting on the principle of charging IHT on pension funds.
After the IHT has been settled, the balance of the pension funds can be distributed, being tax-free or taxed as income as now. You will find more information in our Insight.
You should consider whether you want to review your estate/succession planning in light of the proposed pension IHT charge.
If your pension fund remains primarily for your own retirement security, then the IHT change does not affect this.
On the other hand, if you are deliberately putting off drawing on your pension funds, so as to provide an efficient inheritance, you will have to review this strategy in the context of your overall affairs. You might consider taking withdrawals in your lifetime, especially any tax-free cash, and gifting that now, IHT free if you live another 7 years.
If age 75 or over, also consider drawing pension income and giving away the net proceeds. While the income withdrawals will be subject to income tax in your hands, if the net income is demonstrably surplus to your income needs, your gifts will not be subject to IHT.