PEOPLE are already taking action against a major Inheritance Tax update next year, financial advisers have revealed.
Inheritance Tax (IHT) is a wealth transfer tax on the estate, the property, money and possessions, of someone who has died.
From 6 April 2027, pension wealth will be included in Inheritance Tax.
The government estimates that, of around 213,000 estates with inheritable pension wealth in 2027 to 2028, 10,500 estates will be affected.
Approximately 38,500 estates will pay more Inheritance Tax than would previously have been the case.
The average Inheritance Tax liability is expected to increase by around £34,000 when pension assets are included in the value of the estate.
Financial advisers say they are already seeing clients taking action ahead of next year.
More proactive but measured action
Scott Gallacher, Director at Leicester-based Rowley Turton, said he is already educating his clients about the change.
He continued: “We’ve been very proactive on the issue. Over the past year we’ve increased client communications through newsletters, webinars and practical tools on our website, including an IHT scorecard and calculator, to help clients understand whether the proposed changes are likely to affect them and, importantly, whether they need to act at all.
“That early engagement has meant most conversations are thoughtful rather than reactive. Clients are taking time to understand how pensions now sit within their wider estate, rather than rushing into technical fixes. From a planning perspective, we’re seeing more proactive but measured action.
“This includes reviewing pension nominations, reconsidering the role of pensions as an inheritance vehicle, using pension income more deliberately to support gifting, and where appropriate, implementing specialist solutions such as Gift and Loan arrangements or Discounted Gift Trusts as part of a wider family strategy.”
Often a blind spot
Rob Mansfield, Independent Financial Advisor at Tonbridge-based Rootes Wealth Management, said he is also currently discussing the changes with his clients.
He added: “Inheritance tax is often a blind spot with clients. The first step I take is to look at it and say does it actually have any impact? I find that most people haven’t fully grasped how this may affect them.
“From there I work through their individual scenario, their needs and lifespan to see where we may end up. From there we can look at insuring the tax bill or gifting money on to loved ones. Once you have that plan in place, some options open up, whilst others close off.”
At the moment – do nothing
Colin Low, Managing Director at Ipswich-based Kingsfleet, had some advice for those who are worried.
He added: “At the moment – do nothing. The current rules still apply until April 2027 so anyone who was to die as a result of an accident or a sudden illness would still have the full value of their personal pension outside their estate.
“However, it would be wise to review arrangements in the second half of this year in preparation for the changes next Spring to ensure that your fund will be meeting its objectives for both the provision of income and to go to selected beneficiaries tax efficiently.”
A death knell of sensible wealth planning
Kundan Bhaduri, Entrepreneur, Investor and Landlord at London-based The Kushman Group, slammed Labour’s inheritance tax changes.
He continued: “The Labour government’s assault on pension inheritance is essentially a death knell of sensible wealth planning for anyone who has taken the risk and built something in life. Rachel Reeves has essentially weaponised a complex tax policy against the ordinary citizen who played by the rules.
“This new system requires personal representatives to navigate byzantine processes involving pension administrators, HMRC returns, and withholding notices that can freeze half of death benefits for fifteen months.
“Meanwhile, the super wealthy will simply restructure into trusts, offshore arrangements, and other vehicles beyond the reach of Labour’s clumsy policy. Pensions were designed to encourage retirement saving, not to fund government’s spending through the back door.”
Photo by Elena Leya on Unsplash
