Major Tax Reform Ahead: Pensions in the Firing Line
Back in November 2024, we published a blog analysing the Autumn Budget and its implications for estate planning, particularly around the Government’s proposed tightening of inheritance tax (IHT) rules.
📄 Read our original Autumn Budget 2024 blog here
One of the headline items was the Treasury’s intention to bring unused pension funds into the scope of IHT.
Now, as we move into the second half of 2025, the details of that reform are beginning to take shape. It’s clear that big changes are coming in April 2027.
What’s Changing?
Currently, many pensions — especially defined contribution schemes — can be passed on free from inheritance tax, especially if the pension holder dies before the age of 75. This has made pensions a popular and tax-efficient way to leave wealth to the next generation.
But under the proposed changes:
- From April 2027, any unused pension funds at the time of death may be taxed as part of your estate
- Scheme administrators may be required to report the value of your pension and even deduct IHT directly from the fund before passing it to your beneficiaries
- This could mean lower inheritance for your loved ones and new administrative burdens for your executors
The government has stated that pensions should primarily be for retirement income, not a way to avoid tax. A technical consultation on these proposals concluded in January 2025, and we are currently awaiting the official response and draft legislation.
What Should I Do Now?
While these changes aren’t due to take effect until 2027, now is the time to act. A proactive approach will help preserve your legacy and ensure your estate planning remains efficient.
Here are a few steps to consider:
✅ Review your pension arrangements
Discuss your retirement and legacy goals with a regulated financial adviser to understand how your pension fits into the bigger picture.
✅ Update your Expression of Wishes
Make sure your pension death benefits are directed to the right people, and that the documentation is current and unambiguous.
✅ Consider the timing of pension withdrawals
Depending on your circumstances, it may be worth accessing some of your pension during your lifetime and preserving other assets for inheritance.
✅ Work with your estate planner
Ensure your will, trusts and IHT strategies align with the upcoming changes. Pensions often fall outside the will, but they’re a vital part of the overall plan.
How We Can Help
At White Deer Legal, we’re helping clients stay ahead of the curve. From drafting tailored Expressions of Wishes to reviewing inheritance tax exposure, we’ll work with you and your financial adviser to ensure your plans are robust, tax-efficient and reflect your true intentions.
We’re closely monitoring developments and will publish updates as the government’s proposals become law.
