Thousands of pension savers across the UK have been issued a stark warning about potential cash shortfalls, following Chancellor Rachel Reeves' confirmed changes to inheritance tax rules.
The Upcoming Inheritance Tax Shift
Chancellor Rachel Reeves has confirmed that alterations to inheritance tax (IHT) regulations are scheduled to take effect in April 2027. This impending shift has prompted serious concern from financial experts regarding the liquidity of certain pension holdings.
Financial advisory firm Bowmore Financial Planning has highlighted that the new IHT liabilities could leave many families exposed to severe liquidity issues. The core of the problem lies specifically with pensions that contain commercial property assets.
The Commercial Property Liquidity Problem
According to data from the Financial Conduct Authority (FCA), a significant 54,387 Self-Invested Personal Pension (SIPP) plans currently include holdings in commercial property. These assets are notoriously difficult to sell quickly due to their complex nature and market dynamics.
Mark Incledon, Chief Executive Officer at Bowmore Financial Planning, explained the fundamental change. "Commercial property can be very slow to sell," he said. "In the past, that has been less of a problem as there was no IHT bill to pay on property held in a pension."
Under the current system, inheritance tax is typically due within six months of death. Beneficiaries who inherit a SIPP containing commercial property may struggle immensely to offload these investments within such a tight timeframe to raise the necessary cash for the tax bill.
Consequences for Families and Pension Values
"Introducing IHT on pensions fundamentally changes the risk profile of holding commercial property inside a SIPP," Incledon added. "These assets were never designed to be accessed quickly, and with the changes to IHT rules families could suddenly find themselves trying to raise a six-figure tax bill without the liquidity to do so."
The situation is compounded by the fact that interest continues to accrue on any unpaid tax during the administration period. The pressure of this accruing debt, combined with strict administrative requirements, could force families into a fire sale of the property assets.
Such a rushed sale would almost certainly mean the property is sold for significantly less than its market value, thereby reducing the overall value realised from the pension assets. This creates a double blow for beneficiaries: a large, urgent tax bill and a diminished inheritance.
The warning from Bowmore serves as a crucial alert for the tens of thousands of SIPP holders with commercial property investments to review their estate planning well ahead of the April 2027 deadline.
