Jude Cann DipPFS, Financial Planner
Jude is an accomplished Financial Planner with over 25 years of experience in the industry. He is dedicated to helping clients navigate complex financial landscapes, ensuring their long-term success and security. He thoroughly enjoys helping clients with the challenges they face in fulfilling their hopes, dreams and aspirations. Jude is a keen football follower, an FA accredited football coach as well as a dedicated family man.
As things stand today, most personal and workplace pensions sit outside your estate for Inheritance Tax (IHT) ,purposes. This has resulted in pensions becoming one of the most tax efficient ways to pass wealth between generations. For many people, this had helped them to plan the order of spending their wealth such as using ,cash, individual savings accounts (ISAs) or other investments first, and retaining their pensions until last.
Fast forward to 6th April 2027, the changes will mean that any unused pension funds (any monies that have not ,been spent and remaining in your pension) will generally be included within the value of your estate for IHT.
Why are the pensions rules changing?
The government is concerned that pensions are increasingly being preserved as legacy assets rather than being used to fund retirement. This is due to tax relief on contributions and tax-free growth. When people don’t draw from their pensions, tax revenues fall. Bringing unused pension funds into the IHT system is intended to close this gap.
How does this affect me and my beneficiaries?
Currently, if the value of your estate is below the £325,000 threshold, there will normally be no IHT to pay. The standard IHT rate of 40% applies to the part of your estate over that threshold.
Therefore, unused pension funds could be taxed at 40% on death if your estate exceeds available IHT allowances. For example, if your estate is worth £500,000, and the threshold is £325,000, IHT will be applied to ,40% of the £175,000 over the threshold.
Funds transferred to a spouse or civil partner remain exempt, meaning this change will mainly affect families on, the second partner’s passing away. It represents a meaningful shift, but understanding it now gives you time to, prepare confidently. Redmayne Bentley could help you review your position and plan ahead.
What should you consider now?
1. Revisit your expression of wish
With pension funds forming part of your taxable estate from 2027, keeping your expression of wish up-to-date is more important than ever. Clear, current nominations help your beneficiaries and executors avoid uncertainty or delays.
2. Review your retirement income strategy
Many retirement plans have been built around preserving pensions for as long as possible. These new rules nmay change that balance. In some cases, drawing from pensions sooner and preserving more ISA or taxable investment assets for later life may create better outcomes, for both your retirement income and any plans you may have for your long-term legacy.
3. Re examine your legacy plans
If you’ve viewed your pension as a legacy pot, this change may prompt you to reconsider whether making withdrawals or lifetime gifts is more effective. Conversations about inheritance, financial preparedness or how younger generations may manage funds can be sensitive. Starting early, while everyone is well and plans are clear, often leads to better outcomes. A financial planner can help you ensure everything is in order.
What actions should you take?
There’s no need for reactive or rushed decisions. The most important step is to review your retirement plan in light of the upcoming rules.
Redmayne Bentley’s Financial Planners can help you assess your overall wealth including pensions, ISAs, investments, property, and life assurance – and how this change may affect your future. We can work with you to model your potential IHT exposure, plan your retirement income, and understand the most tax efficient way to pass on your wealth. Drawing from the right place at the right time is increasingly important. We offer an initial, free‑of‑charge conversation, so we can learn more about your circumstances in a noobligation, friendly discussion.
Retirement planning has never only been about numbers. It’s about your lifestyle, your family and the future you want to shape. With thoughtful preparation and the right guidance, you can navigate this change with confidence and continue planning for what matters most.
Could the Government change its mind?
A reversal appears extremely unlikely. While the industry has raised questions about how the new rules will be administered, there’s currently no indication that the change will not proceed in April 2027.
Our Financial Planners are here to help. You can get in touch via your usual Redmayne Bentley office or executive, or using the details below. We’re here to help.
If you would like to speak to a Financial Planner regarding your finances, you can call
0344 259 0002 or email
financialplanning@redmayne.co.uk.
Please note that this article is for information only and does not constitute a recommendation or financial advice. The value of investments and any income derived from them may go down as well as up and you could get back less than you invested. Please note that tax treatment depends on the specific circumstances of each individual and may be subject to change in the future. The Financial Conduct Authority does not regulate tax or estate planning.