Inheriting a £250,000 pension — quarter million, two very different outcomes.
How is a £250,000 pension inheritance taxed? Compare before-75 and after-75 outcomes and understand the IHT benefits of DC pensions.
A £250,000 pension is a substantial inheritance — and the tax treatment varies enormously. Before 75: £250,000 passes tax-free, full stop. After 75: at the basic rate, £50,000 goes to HMRC; at the higher rate, £100,000. That's a quarter of the pot lost to tax at 40%. This is why preserving pensions and spending other assets first is one of the most powerful estate planning strategies available. At £250,000 the IHT advantage is also significant: this same sum held in an investment account within the estate would face 40% IHT above the nil-rate band (potentially £100,000 in IHT), plus income tax on any growth. In a pension, it's entirely outside the estate. Even after 75, the combined tax burden on a pension is typically lower than IHT plus capital gains tax on non-pension assets. Always complete your nomination form — trustees cannot follow your wishes if they don't know them.