Inheritance Tax on pension.
Inheritance Tax (IHT) can apply to any property, money, and belongings you pass on. It usually doesn’t apply when you pass on your pension money. This is because, unlike other investments, your pension isn’t part of your taxable estate.
That’s why it might be tax-efficient to keep your savings in a pension fund and pass it down to future generations.
However, the determining factor is how one take his/her pension:
If pension is taken as one or multiple lump sums in cash but don’t use it or invest it, it forms part of one’s estate and becomes liable for UK inheritance tax.
If one dies while drawing a pension, the payments that a nominated heir or beneficiary gets depends on factors like their age and their health. Joint annuities continue to the beneficiary after one death, but they (the beneficiary) cannot leave the payments to someone else when they die.
Annuities payable for a guaranteed period typically continue even if you die before that period ends. However, if you die after the end of the guaranteed period, your spouse won’t get any payments.
Finally, if one chooses the adjustable income pension option, one can leave money left in one’s pension pot to the choosing beneficiary.