2025/26 Tax Year End Q&A
Last Updated: 19 Feb 26 1 min read
Contents
IHT Gifting Matters
Can individuals who are nominated beneficiaries of your will still receive small gifts £250?
Yes, the £250 is a gift made during your lifetime. The will is a post life passing of benefits.
Can I just check that you cannot give £250 on top of the £3,000?
This is correct, you could not use both gifts to the same person.
Can £3,000 exemption be used by parents to fund kids pension annually instead funding for their grandkids?
They can, just bear in mind that if this is for a sole grandchild and a relief at source pension is used this would be over the £3,600 limit if they have no earnings.
If a beneficiary receives money from a trust, as a result of the surrender of an offshore bond within the trust, could that give rise to a student loan payment?
No, the money from the bond would be classed as capital.
However, if the bond was assigned to the beneficiary and then surrendered, then this could trigger an increase in student loan repayments as the chargeable gain would increase the bond recipient’s income.
It is important to note that minimising student loan repayments should not be the priority; minimising the overall rate of tax is more important, which is why assigning is still likely to be more favourable than the trustees surrendering the bond and distributing capital to the beneficiary.
What about DGT income for gifting out of normal expenditure ?
If this is invested in a bond the "income" is actually classed as return of capital, and as such this would not count towards regular income. This is the same for all bonds.
What is the position on DGT income?
The same as above.
If I withdraw more than the 5% tax deferred from a bond to gift, how would that be treated?
This would still be classed as return of capital, and would not meet the gifts out of normal expenditure rules. Unless the gift could be covered by another exemption then the gift would be a PET or CLT depending on how this is made.
If you are making regular gifts out of income, under what circumstances could you actually spend any savings you have built up? e.g. 1 off use bond to buy yacht?
You are still allowed to make capital purchases, but the key issue is that you have to maintain your standard of living from your income and any excess can be gifted. The upkeep of a yacht may affect their excess income though!
How can PCLS be regarded as Income in respect of NEOOI?
Income is not defined in the IHT legislation but should be determined for each year in accordance with normal accountancy rules. It is not necessarily the same as income for income tax purposes. Income is the net income after payment of income tax.
Is a drawdown pension considered as income when considering gifts from excess income
Yes in our view.
Do you have to give the £3000 annual allowance to one individual?
No.
I have client who has income of £4800 a year from her ISA. Can she use that as a gift from regular income
She can only use dividends or interest that are paid out to her for this purpose. You cannot use capital and as accumulation units don’t distribute their income out (although the client will have to pay tax annually on these if this is above any allowances) then these could not be used.
if PCLS has been taken as a lump sum in 1 year, can it then be gifted over a period of several years and likely meet the NEOOI exemption?
Several years would be too long for this, the revenue has said that after 2 years this would be viewed as capital. Although this is not a hard and fast rule and each case will depend on its own facts.
When gifting from income, if you significantly increase drawdown income then start gifting this amount would it be allowed? E.G. £25k income from a £150k pot.
Yes, as long as you are covering your expenditure from income this would be an excess. There is some ambiguity if doing this in an “aggressive manner (i.e. in this case the pot would deplete in 6 years) if HMRC would take a dim view on this. We have asked for guidance on this as part of the pensions and IHT consultations/discussions.
Pensions and IHT Matters
Is it prudent to advise clients to preserve their DC pension until Apr 27, then consider it as their primary funding vehicle? (if they have minor IHT issue now)
This is a bit wide to give a definitive answer, it comes down to many factors around the client’s situation, tax rates, beneficiaries tax rates etc. We covered the planning options in our August 2025 webinar Pondering planning with pensions in the IHT world
For lower value estates, are pensions still a good legacy planning tool, if there is no IHT liability? i.e. don’t ‘throw the baby out’ for estates up to £1m?!
If the overall estate including the pension will be below the available nil rate band(s), then there is no need to panic as IHT will not be an issue. The one thing we would say is if there is any tax free money for the member and death is likely to be after the age of 75, then there is a good case for taking this benefit out of the pension so that income tax is not an issue for the beneficiaries.
With the taper on MRNRB starting at £2m, could the marginal tax rates on inherited pensions could be even higher than the 67% you used?
Agreed, this would be the case.
Can the income be drawn from a large pension even though it triggers 40% tax, then it can be given to child who is a higher rate taxpayer to claim relief?
It can indeed. If there is a net benefit for the beneficiary in comparison to leaving this in the parent’s pension then this seems like good planning to us.
For clients in their 60s or 70s with large pensions, how wise is it to work on a withdrawal strategy to take income with 40% income tax being triggered for Wol?
We covered the planning options in our August 2025 webinar Pondering planning with pensions in the IHT world For some clients this may be beneficial, for others it may not.
I thought previously M&G had said PCLS taken on its own is likely to be seen as capital, as opposed to UFPLS, where it is considered income. In other words, it depends how it is accessed?
It would be capital if taken as a single lump sum, regular phasing of the PCLS over years would make it income in nature.
Could purchasing an annuity take those funds outside of the estate?
We covered the planning options in our August 2025 webinar Pondering planning with pensions in the IHT world if value protection or a guarantee period is included this would still be subject to IHT. Also if you purchased an annuity when you knew you were in ill health this would be an issue too.
Royal London state that the tax free element in flexible pension withdrawals does not constitute income for the purposes of NEOOI. Is this wrong?
We did state that there are different interpretations of this and it was a grey area. As you can see from the slides, we added a literal interpretation of the grey area.
Can Grandchildren be Beneficiaries ? For the purposes of leaving Pension assets?
Legally not an issue, but you would need to check with the scheme that this is allowable within their rules.
is it viable/sensible directing deps pension to young say grandchildren
Depending on the circumstances this is definitely viable. The sense of this would be based on individual circumstances.
Re member vs beneficiary total tax on inherited pension, even if beneficiary is HRT, they only pay tax on withdrawal from the beneficiary pension.
That is correct, but if they leave this untouched forever this would then fall into their estate. If they are likely to drop a tax band, then this could be beneficial to them.
Just to clarify. Pension benefits are paid to beneficiaries at their personal tax rate? Surely this is going to be a nightmare to administer.
It’s no more difficult than administering tax for the original member. We would obtain a tax code from HMRC and apply PAYE to this.
Shouldn't we also consider their age when taking money out as they may be getting closer to 75 when double taxation for beneficiaries will potentially arise.
All relevant circumstances of the client should be taken into account, income tax being applied to the benefits is one of these.
Pension funds also reduce the MRNRB
Yes, this is the case for non-discretionary schemes at present. Come 2027 discretionary schemes will have the same impact.
What if the individual simply does not have a need for the lump sum, although there is room within his BRT, how would you justify a lump sum withdrawal only? They could defer until needed and then Non/BRT applicable? Also, if they then die pre 75, all tax free benefits are reinstated.
If this is in relation to a beneficiary receiving a drawdown fund this could make sense if this is a taxable drawdown (i.e. the original member dies after the age of 75). Although on the recipient’s death this pension pot would be in their estate for IHT purposes, so may not all be tax free.
Does the pension legacy modelling tool take into account Scottish tax rates?
You can select bespoke tax rates to fit your clients’ circumstances.
Pension Funding Matters
For a higher rate taxpayer who has £40k to put into a pension, would it be better to put the £40k in this tax-year or spread it over this and next tax-year
This depends, if the client has adjusted net income of £70,270 and paid £40,000 gross into a pension only £20,000 would obtain higher rate relief. This would make the overall effective rate of relief 30%, in this circumstance paying over 2 tax years would obtain a full 40% relief.
Pension conts for non taxpayers/not employed £3,600 - can they also make conts for previous years e.g. 24/25 23/24 or can they only use the current tax year?
No, you can only carry forward unused annual allowance, not tax relief. And in order to be able to use carry forward you have to have a total pension input for the year that exceeds wither the standard or tapered annual allowance (carry forward cannot be used if the MPAA has been triggered). As the client would be limited to £3,600 gross they cannot excess the standard or tapered AA.
My clients are directors of their own ltd company. The company pays all pension contributions, typically £30k p/a, can they carry forward?
Yes, as long as they up their contribution to above the standard or tapered AA.
Re an employer contribution, is there a limit on the amount of employer contribution that can be made into a member's plan if earnings are not relevant?
It is only personal or third party contributions that are limited by relevant earnings (or £3,600 if that is higher). There is no link to earnings for an employer contribution. In theory an employer could pay £10m into an employee’s pension in one year, although as the member would be responsible for the AA excess charge, they may not be that keen on this!
Separately, please be aware that employer contributions only qualify for corporation tax relief if they meet HMRC’s ‘wholly and exclusively’ test.
Did I see something about a Loss in an OEIC of £10,000 being able to be used in funding a Pension? Didn't quite understand that example given!
The loss was not used to make the pension contribution, but as the OEIC had lost £10,000 this loss could be carried forward to offset against future capital gains.
Miscellaneous Matters
What is Reform's stance on this? Could they reverse the IHT on pensions?
Any government, even the present on could reverse this, they have the legislative authority. As for Reform’s stance you would have to ask Nigel for that.
Is there a tax efficient way for a client to move shares into an ISA please?
An in-specie contribution of shares into an ISA would still be a CGT event and that may mean tax to pay. If any gains are under the annual exempt amount of £3,000 this would be tax efficient, or the client may have losses from previous years that could be used. Also if the gain has pushed the client into the higher rate of CGT, a pension contribution could help mitigate the rate of tax paid.
Can I have a copy of the webinar thanks Anne
It was on the previous page that this Q&A is linked to, and I’m called Mark!
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