Inheriting a £1,000,000 pension — maximum stakes, maximum planning needed.
What tax applies to inheriting a £1,000,000 pension? See how the age-75 rule, lump sum allowance, and IHT interact at this pot size.
A £1,000,000 pension inheritance is transformational — but the tax treatment requires careful navigation. Before 75, the full million passes income-tax-free to beneficiaries, but only up to the lump sum and death benefit allowance (£1,073,100 across all pension arrangements). If the member had other pots or previously took tax-free cash, the remaining allowance may be less than £1M, meaning some portion is taxed at the beneficiary's marginal rate even before 75. After 75, the entire pot is taxable — a 45% additional-rate taxpayer beneficiary would lose £450,000. HMRC has also signalled that retaining very large pension pots primarily for inheritance purposes could invite challenge under anti-avoidance rules. At this level, the interaction between the lump sum allowance, beneficiary tax bands, and potential HMRC scrutiny makes professional advice essential. Multiple beneficiaries, phased drawdown, and careful lifetime spending strategy can collectively save hundreds of thousands in tax.