In the 2024 Autumn Budget, Chancellor Rachel Reeves announced a significant shift in the treatment of pensions under inheritance tax (IHT) rules. From 6 April 2027, it is proposed that unused pension funds and death benefits will be included as part of an individual’s estate for IHT purposes. This represents a major change from the current framework, where most pension funds are exempt from IHT when passed on after death.
The government has introduced this measure to address concerns that pensions are being used as a vehicle for wealth transfer rather than their primary purpose of funding retirement. By including pension funds in the IHT framework, the government aims to encourage the use of pensions for their intended purpose and close what it views as a tax loophole.
This proposed change could significantly impact estate planning, especially for individuals with substantial pension savings. Financial planners have noted that, while the details remain under consultation, it may be necessary to rethink traditional approaches to using pensions as part of retirement and inheritance strategies. Once the consultation period ends and draft legislation is finalised, advisors anticipate clearer guidance on whether alternative approaches, such as adjusting the timing of pension withdrawals, will be beneficial to minimise tax.
The inclusion of pensions in the IHT regime is part of the government’s broader effort to reform the tax system and increase revenue. It highlights the importance of proactive planning and flexibility in response to evolving tax legislation, ensuring both retirement goals and inheritance plans remain effective under the new rules.
If you would like to review your financial planning, then contact the multi-award-winning Wingate Financial Planning team.
