The forthcoming changes to inheritance tax will significantly impact estate planning, as pensions will be included in inheritance tax calculations starting in April 2027. This shift is prompting advisers to adapt their strategies to help clients navigate the new landscape.
According to a survey by Scottish Widows, 57% of financial advisers report that their clients are uncertain about the implications of these changes. In response, 55% of advisers are recommending lifetime gifting strategies, while 49% are suggesting earlier drawdown of pension assets to mitigate potential tax liabilities.
Additionally, 32% of advisers are advocating for the use of Individual Savings Accounts (ISAs) as alternative tax-efficient wrappers. Trusts or onshore bonds are being advised by 37% of advisers, and 18% are suggesting family investment companies as part of their clients’ financial strategies.
The Treasury has accepted some recommendations from the House of Lords regarding the treatment of unused pensions in inheritance tax calculations. However, under the new rules, only the first £2.5 million of business assets will qualify for full relief, with any value above this threshold subject to a 20% tax charge.
Jo Bamford, a notable figure in the industry, has expressed concern over the implications of these changes, stating, “The family tax is a real problem.” He emphasized the need for families to consider their investments in Britain amidst these tax reforms.
Jenny Davidson from Scottish Widows highlighted the significance of these changes, noting, “Pensions have long been a cornerstone of estate planning, offering a highly tax-efficient way to accumulate and pass on wealth.” She added that the upcoming reforms represent perhaps the most substantial change to pensions since the introduction of pension freedoms.
As the April 2027 deadline approaches, advisers are proactively preparing their clients for these changes, ensuring they are informed and ready to adjust their financial plans accordingly.
Details remain unconfirmed regarding how these changes will be fully implemented and the potential long-term effects on inheritance tax policy in the UK.
