How to Protect Your Legacy Against Looming IHT Changes
The government has announced proposed changes to the rules around Inheritance Tax (IHT) and pension funds, to take effect from 6 April 2027. While final legislation and detailed guidance are still awaited, the direction of travel is clear.
At Fiander ETL, we believe in keeping you one step ahead, so you can make informed decisions rather than acting under pressure. Below, we outline what is changing, what it could mean for your long‑term plans, and the strategic steps you can consider now to help manage potential tax exposure in the future.
At Fiander ETL, we believe in keeping you one step ahead, so you can make informed decisions rather than acting under pressure. Below, we outline what is changing, what it could mean for your long‑term plans, and the strategic steps you can consider now to help manage potential tax exposure in the future.
What’s changing?
Historically, pensions have been viewed as a highly effective way to pass on wealth, often sitting outside the scope of IHT. That landscape is now shifting.
Under the proposed changes, unused pension funds and certain pension death benefits will generally become part of your estate for IHT purposes. This represents a fundamental change in how pensions are treated on death and has important implications for estate planning.
In practical terms, this means:
As a result, individuals may need to rethink how pensions fit within their wider succession and wealth transfer strategy.
Under the proposed changes, unused pension funds and certain pension death benefits will generally become part of your estate for IHT purposes. This represents a fundamental change in how pensions are treated on death and has important implications for estate planning.
In practical terms, this means:
- Pension savings may be exposed to IHT at up to 40% (where estates exceed allowances)
- Uncrystallised pension funds and remaining drawdown balances would both be brought into scope
- Long‑standing assumptions around pensions as an IHT‑efficient planning tool may no longer hold
As a result, individuals may need to rethink how pensions fit within their wider succession and wealth transfer strategy.
What is meant by ‘Unused Pension Funds’?
For these purposes, unused pension funds typically include:
Understanding how pension assets interact with the wider estate and with available IHT allowances, will be critical when planning for the next generation.
- Pension savings not accessed before death
- Residual funds in drawdown that have not been withdrawn
- Certain death benefits held within the pension scheme
Understanding how pension assets interact with the wider estate and with available IHT allowances, will be critical when planning for the next generation.
How should you respond?
This change from April 2027 has the potential to reshape estate planning, and the steps you take now could make a meaningful difference to your family’s long-term position.
- Don’t delay: Early, considered planning is far more effective than reactive decisions later on.
- Review pension accumulation: Large, untouched pension funds will increase IHT exposure
- Consider strategic withdrawals: Phased or planned drawdowns may help manage both tax exposure and cash‑flow needs.
- Make full use of available allowances: Spouse and civil partner exemptions, alongside gifting rules, are likely to become more important than ever.
- Review beneficiary nominations: Ensuring pension death benefits are aligned with your wider estate planning intentions remains essential.
- Intergenerational planning: The way you pass on wealth matters. Joined‑up financial and tax advice is key.
Proven mitigation moves
Every family’s circumstances are different, but well-established planning approaches may include:
- Phased pension drawdown strategies
- Lifetime gifting, taking account of the 7 year rule
- Transfers between spouses or civil partners
- Intentional use of pension funds during lifetime
- Strategic asset allocation across pensions, ISAs and other vehicles
- Exploring trust planning or insurance solutions, where appropriate
