What the proposed pensions and inheritance tax shake‑up could mean for your family

For years, many families have relied on pensions as a tax‑efficient way to pass wealth to the next generation. That's why the imminent changes to inheritance tax (IHT) have caused understandable concern. From 2027, some pension assets will be included in IHT calculations as a result of the Finance Act 2026. Now is the time to understand the potential impact and put a plan in place.

Today, most defined contribution pensions typically sit outside your estate for IHT purposes, so they are often not counted towards the £325,000 nil‑rate band. Currently, this gives you the opportunity to use the residence nil‑rate band of up to £175,000 when passing a home to your direct descendants, subject to tapering above £2 million. If you die before age 75, beneficiaries can usually draw from a defined contribution pension tax‑free; after 75, withdrawals are taxed as income for them but are normally not subject to IHT. These features have encouraged many people to spend non‑pension assets first in retirement and preserve pensions for later life and legacy.

This article is for information only and is not personal advice. Tax and pension rules can change, and their impact depends on your individual circumstances. Consider seeking regulated financial advice before making decisions. If pension death benefits are brought into the IHT calculation, some or all of your pension could be counted within your taxable estate on death.

This may push estates above IHT thresholds and increase the potential 40% tax due on amounts above the available allowances. It could mean that you no longer wish to preserve pensions for last, and it is likely to affect families who have relied on pensions as their primary inheritance vehicle, especially where other assets already bring the estate close to or above IHT thresholds. Those most likely to feel the impact include individuals and couples with sizeable defined contribution pension pots who had planned to leave most of their pension to children or grandchildren; estates near or above £2 million where the residence nil‑rate band tapers; single, divorced or widowed individuals who do not benefit from the spouse exemption; and anyone who has not reviewed pension nominations, wills and overall estate structure in recent years. Practical steps worth considering now Start by reviewing your pension death benefit nominations to ensure they are up to date and allow beneficiaries the flexibility they may need.

Revisit your retirement income sequence, because if pensions become exposed to IHT, it could make sense to draw more from pensions during your lifetime while preserving other assets, depending on your tax bands, investment mix and goals. Make full use of available gifting allowances, including annual exemptions and regular gifts out of surplus income, recognising that larger gifts typically fall outside the estate after seven years. Consider whether life insurance written in trust could provide liquidity to help meet a potential IHT bill, while weighing costs and suitability. Evaluate trusts and family investment structures carefully, acknowledging their tax and legal implications.

Keep your will, letters of wishes and Lasting Powers of Attorney current and aligned with your nominations. And finally, stress‑test your plan against different scenarios, from policy changes to varying returns and inflation. Taking advice now can make a meaningful difference. The rules are evolving, and the right response depends on your total assets, family situation and retirement plans.

Thoughtful adjustments made early - before any new rules take effect - can help you protect more of your wealth, create clarity for loved ones and avoid rushed decisions later. Independent financial planning with Succession Wealth Succession Wealth can support you through this change. The UK-based independent financial planning and wealth management firm provides whole‑of‑market advice that is tailored to your goals and family circumstances. Its holistic approach covers pensions, investments, retirement and estate planning, delivered by approachable local advisers backed by the strength and resources of the firm's relationship with Aviva.

Succession is committed to clear, transparent fees with no hidden charges and full explanations of costs and value. Since 2009, its nationwide team has helped more than 19,000 clients navigate pensions, retirement income and inheritance planning through changing legislation, and its service is reflected in independently verified client reviews, with a 4.8/5 rating on VouchedFor* and a 4.5/5 rating on Trustpilot*. If you are concerned about how the proposed inheritance tax changes could affect your pension and estate, speak to a financial adviser today to understand your options and develop a plan tailored to your circumstances. Learn more at successionwealth.co.uk, visit the website, make an enquiry at successionwealth.co.uk/contact-us, or call 0808 253 2117.