From April 2027, untouched pension funds will fall under inheritance tax, a change confirmed by former Chancellor Rachel Reeves and now overseen by Andy Burnham and John Healey. The shift is already prompting a significant response, with one financial adviser reporting a 50% increase in enquiries about inheritance tax planning.
David Stirling, Independent Financial Adviser at Belfast-based Mint Wealth, said the firm has seen at least a 50% rise in clients seeking advice on inheritance tax. “It's become a much bigger part of the business, particularly among clients over 70 who have built up a good amount of wealth,” he said.
What the new rules cover
The changes mean that pension funds left untouched at death will be subject to inheritance tax levied by HMRC. This includes funds paid out as a lump sum, beneficiary’s drawdown, or an annuity. Lump sum payments into a by-pass trust will also be in scope.
However, certain payments remain exempt. Scheme pensions, funds paid as charity lump sum death benefits, and any death in service benefits will not be affected by the new rules.
Advisers warn of a 'stealth tax'
Mr Stirling described the change as “a bit of a stealth tax”, noting that many savers had built their pensions on the assumption that the money could be passed on tax efficiently. “People have spent their working lives paying into pensions, believing that money could be passed on tax efficiently. Now they're having to rethink those plans,” he said.
He urged families not to delay their financial reviews. “We're encouraging people not to leave it until the last minute. If you're looking at certain types of inheritance tax planning, such as placing money into trust, the seven-year rule means you need to start thinking about it well in advance,” he explained.
Advice for savers of all wealth levels
Mr Stirling emphasised that the advice is relevant regardless of the size of the estate. “Whether someone has £500,000 or several million pounds, they usually just want straightforward advice they can understand. People don't want jargon. They want someone to explain what the changes mean for their family,” he said.
He also cautioned against waiting until the spring to act. “Don't wait until next spring to start asking questions. These aren't decisions you want to rush. The earlier people understand their options, the more choices they're likely to have,” he added.
