Since presenting our inheritance tax seminars in Worcester and Solihull last month, pension inheritance tax changes have remained one of the most common subjects of discussion. As we head deeper into the year, we felt it was a good time to revisit the key points and provide an update on the latest developments.
For many years, pensions have been one of the most tax-efficient assets to pass on to future generations. However, from 6 April 2027, most unused pension funds and death benefits will be included within an individual’s estate for inheritance tax (IHT) purposes. This represents one of the most significant estate planning changes in recent years and is likely to prompt many families to reconsider how they intend to use their pension wealth.
Government estimates suggest that around 10,500 estates each year could face an inheritance tax liability that they would not have paid under the current rules, while approximately 38,500 estates are expected to pay more inheritance tax as a result of pension assets being included in the value of an estate. Whilst these figures provide a useful view of the potential impact, our belief is that the number of affected estates will likely be higher than the estimates suggest.
This does not mean pensions have lost their value. They remain one of the most tax-efficient ways to save for retirement and continue to offer substantial benefits during an individual’s lifetime. However, the long-standing strategy of preserving pension assets primarily for inheritance tax planning purposes may no longer be as effective as it has been historically.
We have also seen further clarification from HMRC and the Treasury regarding how any inheritance tax liability may be paid. While some of the practical details are still being finalised, our thoughts are that allowing pension schemes to settle the tax directly will likely be the simplest and most efficient approach in many cases. We will continue to keep a close eye on further updates and keep clients informed as more guidance becomes available ahead of April 2027.
As the April 2027 changes move closer, this is an important area to keep under review. If you are unsure how the new rules could affect your pensions or wider estate planning, it may be worth taking advice sooner rather than later.
