What the New Inheritance Tax Rules Mean for Your Retirement Plans

Following up on our recent Autumn Budget Summary, the Chancellor has introduced new rules around pensions and Inheritance Tax (IHT), which has understandably led many to have questions and reconsidering their retirement plans.

With IHT starting to apply to certain pensions from April 6, 2027, it’s important to understand how these changes could impact you, your family, and what you do next.

In this week’s blog, we’ll discuss what these changes mean, who will be affected, and the steps you can take now to manage any potential impact on your financial future.

What Has Changed?

Currently, pensions are a valuable estate planning tool, especially for those with Defined Contribution pensions. A Defined Contribution (DC) pension is a type of retirement plan where you and your employer contribute money, which is then invested in the stock market. At retirement, you’ll have a pot of money to draw from, but the amount depends on how much was contributed and how well the investments have done over time.

If someone passes away before age 75, their pension can usually be passed to beneficiaries without any tax. However, from April 2027, this is scheduled to change. Pensions will be subject to Inheritance Tax (IHT) of up to 40%. This new rule is now commonly referred to as a ‘double death tax’ because funds that were previously tax-free could now face a significant tax hit.

Who Will Be Affected?

The changes will mainly impact people with larger Defined Contribution pensions. If you have purposely invested in pensions to keep your estates below the IHT threshold, you may now need to rethink your strategy to avoid a big tax hit.

If you’re in a couple and have assets around or above the £1 million IHT threshold, you could be especially impacted. The new rules might push your estates over that limit, which means your loved ones could face a large tax bill when inheriting the pension.

What You Can Do Before 2027

There’s no need to panic. Fortunately, you have time to prepare, and we’re here to help every step of the way.

With more than two years until the new rules kick in, there are plenty of ways to reduce potential IHT liabilities on your pension. Here are some strategies to think about. But remember, everyone’s situation is different, so it’s important to get advice that’s tailored to you.

• Review Your Pension Strategy: Pensions have been a preferred option for protecting wealth because of the IHT exemption. With these changes, it might be a good idea to look into other ways to manage your wealth and keep your estate below the IHT threshold.
• Consider Gifting or Other Forms of Wealth Transfer: Gifting assets over time, within IHT limits, can lower the taxable value of your estate. This could be a great option if you’d prefer to pass on wealth while you’re still around, rather than leaving it through a pension inheritance.
• Look Into Estate and Lifestyle Planning Options: Estate planning tools like trusts, tax-efficient investments, or Lifestyle Financial Planning strategies can help you manage your wealth effectively. At Joslin Rhodes, we are specialists in Lifestyle Financial Planning. As such, we’ll coach you to work out what kind of lifestyle you want in retirement. It’s only by deciding what life you want that we can work out the best way to get you there. We’ll help you define your future goals, then take care of the Financial Planning to make it happen—so all you need to do is enjoy life. This approach not only helps you make the most of your savings during your lifetime but also reduces the tax burden on your beneficiaries. After all, isn’t that what life’s all about?
• Revisit Your Will and Estate Plans: With the new IHT rules on pensions, it’s a smart idea to review your will and any estate plans. An up-to-date will and estate plan are crucial to ensure your wishes are carried out in the most tax-efficient way possible.

Whether you’re looking to draft a Will, set up a trust or Lasting Power of Attorney, reduce inheritance tax, or protect your estate from care fees, our expert Estate Planning team is here to help.

We’ll simplify the confusing legal jargon and bust common myths—like the idea that signing your house over to the kids will protect it from care fees. You simply tell us what you want to protect, and we’ll make sure what you leave behind goes to the people you want—rather than to someone you haven’t considered, like the taxman.

Take Action and Plan Ahead With The Help of the Experts

Now is the perfect time to review your pension, retirement and estate plans to safeguard your legacy and ensure your estate is fully optimised for the new rules.

To discuss your options, or for a professional review of your existing plans, simply get in touch now.

Joslin Rhodes Pension & Retirement Planning – Real Advice, For Real People