HMRC has confirmed a tax rule for state pensioners born before 1951. Under HMRC rules, tax relief on individual pension contributions stops when a pensioner reaches their 75th birthday.
Tax Relief Ends at 75
Once you turn 75, you no longer receive tax relief on personal pension contributions. For that reason, many pension schemes don’t accept new contributions after this.
Fidelity, the pensions provider, explains: "If you happen to be working at 75, your employer can still pay into your pension - provided these contributions meet tax rules. Age 75 is also important for death benefits. If someone dies under the age of 75, their beneficiaries do not, at the moment, generally have to pay income tax or inheritance tax (IHT) on inherited pension wealth."
Death Benefits Changes from April 2027
"If someone dies aged 75 or over, beneficiaries normally pay income tax on money they receive from the pension but, currently, they do not usually pay IHT on that. However, from 6 April 2027, unused pension funds and certain death benefits will be included in the deceased's estate for IHT purposes."
"Once you turn 75, you should still be able to take your pension’s tax-free cash. However, the rules can become more complicated and potentially less favourable. Some pension providers may not allow you to take tax-free cash after 75."
Expert Insights on Tax Implications
Lucie Spencer, from Saga, says: "Where death occurs before the age of 75, pension funds passed on to beneficiaries can still be withdrawn free of income tax, up to an individual’s lump sum death benefit allowance [currently standing at £1,073,100]."
"For individuals who die after the age 75 post-April 2027, their funds will be liable to both inheritance tax at 40% and income tax at the beneficiary’s marginal rate, creating a potentially significant tax charge."
Exemptions and Reliefs
Keep in mind, however, that whether your beneficiaries will face an IHT bill will depend on the value of your estate and any available exemptions and reliefs.
Craig Rickman, pensions expert at interactive investor, explains: "Spouses and civil partners can still inherit the pension IHT-free. For everyone else, IHT will only be due if the value of pension plus the rest of your estate exceeds your available IHT allowances - potentially up to £1 million for married couples who own a home that’s left to direct descendants like children and grandchildren."
