Households are being urged to act now as a change to pension rules is set to cost families 'substantially more' from April 2027. Currently, pensions are exempt from Inheritance Tax (IHT), but under the new rules, any unused funds and death benefits will form part of an estate for IHT purposes.
Warning from tax planning experts
Tax planning firm Blevins Franks has warned that the change will be 'felt by hundreds of thousands' of British families. The firm stated: "The biggest change is yet to come – and will be felt by hundreds of thousands of British families."
The firm explained that households could pay 'substantially more' Inheritance Tax from April 2027. It continued: "Your family could now pay substantially more inheritance tax overall than you previously anticipated. Coupled with the potential income tax applied when your heirs take the death benefits, total tax paid on inherited pensions can reach 67%."
Action needed before April 2027
Blevins Franks warned that affected households need to take action now to reduce the impact on their families. The firm said: "There is less than a year for you to review and adjust your wealth management. Confirm how this reform will affect your heirs and explore what steps you can take now to reduce the impact on your loved ones."
They offered examples of steps to consider, including reconsidering the order in which retirement income is withdrawn, reviewing estate planning, using the £3,000 annual gift exemption, and considering a Potentially Exempt Transfer (PET). The firm added: "Take personalised, specialist advice – there may be opportunities you are not aware of, while others may not be suitable for your family situation and objectives."
