News & Views

Proposed Inheritance Tax on Pensions: What It Means and Why It Matters

Two people passing a toy house from one to the other representing inheritance tax

The UK government’s proposal to introduce inheritance tax (IHT) on unused pensions from April 2027 has caused a stir among savers and retirees alike. A recent Financial Times article by Emma Dunkley and Mary McDougall shed light on this significant shift, revealing its potential to reshape how pensions are treated as part of estate planning.

If implemented, this change could lead to combined tax rates of up to 64% for higher-rate taxpayers, on inherited pensions—marking pensions as one of the most heavily taxed assets. Here’s why this matters to you:

Why the Proposed Inheritance Tax on Pensions is Problematic


Double Taxation

Pensions, originally designed to fund retirement, could now be subject to both inheritance tax and income tax when passed to beneficiaries. This creates a disproportionate burden, especially on higher-rate taxpayers who may lose more than half of the value of the inheritance.

Increased Complexity

This change would require pension providers to work closely with executors to calculate and collect tax. The resulting delays and added administrative costs would only increase stress for grieving families.

Erosion of Retirement Confidence

Pensions have long been viewed as a reliable tool for retirement and intergenerational wealth transfer. Using them as a revenue generator undermines public trust in long-term savings and raises questions about the fairness of the tax system.

What Can You Do?

Now, more than ever, it’s essential to prioritise proactive financial planning to protect your legacy and minimise unnecessary tax exposure. Here’s how:

Protect Intergenerational Wealth

Strategic estate planning is crucial to mitigate the impact of this proposed tax change. Expert advice can help you explore alternatives like trusts or gifting strategies.

  • Navigate the Complexity

Professional guidance can prevent costly delays and ensure that your pension is passed on efficiently and effectively, sparing your loved ones additional stress.

Reassess Your Priorities

Retirement savings strategies may need to evolve. Working with a financial planner can help you adapt your approach to preserve wealth for future generations.

Why Act Now?

As highlighted in the Financial Times article, the proposed inheritance tax changes have far-reaching implications for families relying on pensions as a legacy tool. Waiting until the changes take effect could mean fewer options and higher costs.

At Wells Gibson, we recognise the importance of protecting your wealth for future generations. We help our clients navigate the complexities of the proposed inheritance tax on pensions, offering tailored strategies to safeguard your assets and ensure they continue to benefit your loved ones. We’ll guide you through options such as trusts, gifting, and enhanced estate planning to minimise tax liabilities and ensure a seamless wealth transfer.

If you have concerns or would like to review the potential impact of these changes on your financial plan, we’d be happy to address them at your next Annual Wealth Plan Meeting or contact the team directly to discuss any concerns.

Disclaimer: The insights and information regarding the proposed inheritance tax changes on pensions referenced in this blog are based on a Financial Times article. The original article remains the intellectual property of the Financial Times. For the full article, please visit the Financial Times website.