Finance Act 2026 · Royal Assent 20 March 2026

The Pension Dual Tax Charge — What Changes in April 2027

From April 2027, pension funds will face both Inheritance Tax and income tax simultaneously. For many clients, this creates a combined charge of up to 67% — a double tax that did not previously exist.

For clients already over 75, this is a live planning issue today, not a future risk. The income tax charge on death benefits has applied since 2015. IHT is new from April 2027.

There is a structured, FCA-regulated solution that eliminates both taxes — the income tax charge from the day of transfer, and IHT after two years.

↓ Download the compliance pack Book a Meeting →
— days
to April 2027
Finance Act 2026 takes effect 6 April 2027
BPR qualifying period is 2 years · Act now to start the clock
£500,000 pension · client over 75 · no spousal exemption
IHT @ 40%−£200,000
Beneficiary income tax @ 45%−£135,000
Net to children£165,000
33p in every pound reaches the next generation
With the FPA · after 2 years
IHT — 100% BPR£0
Income tax via Pref Share£0
Net to children£472,700
Finance Act 2026 · Royal Assent 20 March 2026.  April 2027 is now less than 12 months away. For clients over 75, income tax on death benefits can be eliminated from the day of transfer. The 2-year BPR clock starts immediately.
⚠ For professional adviser use only — not for client distribution. The information on this site does not constitute financial, tax or legal advice. Tax treatment depends on individual circumstances and is subject to change. BPR is not guaranteed — past claim success does not guarantee future outcomes. The value of pension investments can go down as well as up. Independent advice required before any recommendation is made to a client.  Full risk warning ↓
Finance Act 2026 · Confirmed in Law

The Double Tax Charge — What Is Actually Happening

For years, pension funds were the most efficient asset to pass on. That ends in April 2027. The Finance Act 2026 brings pension funds into the IHT estate. For clients over 75, they also face income tax on every penny drawn by beneficiaries. Two taxes, hitting the same money, simultaneously.

⚠ This is now law. Finance Act 2026 received Royal Assent on 20 March 2026. The major political parties are not opposing it. There is no further Parliamentary opportunity before April 2027. Clients who need to act should act now.
The Tax Change

Before and After April 2027

SituationIHT on pension fundBeneficiary income taxCombined effective rate
Pre April 2027 · over age 75No IHTIncome tax appliesUp to 45%
From April 2027 · over age 7540% IHTIncome tax up to 45%Up to 67% — or 80%+
Pre April 2027 · under age 75No IHTNo income tax0%
From April 2027 · under age 7540% IHTNo income tax40%
The Numbers

What 67% Looks Like on a Real Pension Fund

£500,000 residual pension fund. Client over 75. Children as beneficiaries. No spousal exemption. Beneficiary is a 45% income taxpayer.

Standard Drawdown — Without Planning
Pension fund on death£500,000
IHT @ 40% — new from April 2027−£200,000
Residual after IHT£300,000
Income tax @ 45% on £300,000−£135,000
Net to children£165,000 (33%)
Two taxes. Same money. 67p in every pound lost.
With the FPA — After 2 Years
FPA fund (after all charges)£472,700
IHT — 100% BPR applies£0
Income tax via Preference Share£0
 
Net to children£472,700
Beneficiaries better off by £307,700.
Priority Segments

Who Is Most Urgently Affected

Priority 1 — Act Immediately

Clients Over Age 75

The income tax on death benefit charge has applied to over-75s since 2015. IHT is new from April 2027. But the income tax saving from the FPA Preference Share applies from day one of transfer. Clients over 75 save income tax immediately and start the BPR clock simultaneously — a double win.

  • Income tax saving (~45% of fund) applies from the day of transfer
  • BPR clock starts immediately — most will clear 2 years before April 2027
  • Executor liability for pension IHT under new rules is eliminated
  • Preference Share passes via will — no trustee discretion
Priority 2 — Act Before April 2027

Clients Under 75 — Non-Spouse Beneficiaries

For clients under 75 who plan to leave pension funds to children, the BPR clock needs to start now. A minimum £100,000 starts the clock. Additional funds can be swept in after 2 years and benefit from the original BPR start date on the qualifying portion.

  • No spousal exemption = full IHT on the pension fund from April 2027
  • Start BPR clock now — qualifying period must begin before April 2027
  • Income drawn flexibly, exactly like pension drawdown
  • Additional funds added later benefit from original BPR clock
The Executor Problem

A Hidden Risk Advisers Must Flag

Under the April 2027 rules, executors face personal liability for the pension IHT within 6 months of death — before assets are distributed. For a £500,000 pension, the executor is personally liable for £200,000 of IHT within that window. In blended families, this often means a child acting as executor is personally liable for a tax bill before receiving anything themselves.

The Preference Share eliminates this entirely. It passes via the will as a simple estate asset — there is no separate HMRC pension IHT reporting process and no executor personal liability.

For professional adviser use only. Aetas Wealth / Insight Financial Associates Ltd, FCA No. 458421. All figures illustrative. Individual advice required.

Part of the Aetas Groupa>  ·  Aetas in the Workplacea>  ·  Charity Wellbeing Servicea>  ·  Aetas Collectivea>

p>
div>