Thousands of Brits are scrambling as they prepare to face average new bills of £34,000 from the HMRC when a new tax change is made. Many people are already taking action against a major tax update next year launched by Rachel Reeves in her first Budget, financial advisers have revealed in a new warning.
Of around 213,000 estates with inheritable pension wealth in 2027 to 2028, 10,500 estates will be affected, the government estimates. About 38,500 estates will pay more Inheritance Tax than would previously have been the case under the changes.
The tax is a wealth transfer tax on the estate, the property, money and possessions of someone who has died. From April 6 2027, pension wealth will be included.
The average Inheritance Tax liability is expected to increase by around £34,000 when pension assets are included in the value of the estate. Now financial advisers warn they are already seeing clients take action.
Scott Gallacher, Director at Leicester-based Rowley Turton, told Newspage he is already educating his clients about the change, which would see the bills collected by HMRC. He said: “We’ve been very proactive on the issue. Over the past year we’ve increased client communications through newsletters, webinars and practical tools on our website, including an IHT scorecard and calculator, to help clients understand whether the proposed changes are likely to affect them and, importantly, whether they need to act at all.
“That early engagement has meant most conversations are thoughtful rather than reactive. Clients are taking time to understand how pensions now sit within their wider estate, rather than rushing into technical fixes. From a planning perspective, we’re seeing more proactive but measured action.
“This includes reviewing pension nominations, reconsidering the role of pensions as an inheritance vehicle, using pension income more deliberately to support gifting, and where appropriate, implementing specialist solutions such as Gift and Loan arrangements or Discounted Gift Trusts as part of a wider family strategy.”
Rob Mansfield, Independent Financial Advisor at Tonbridge-based Rootes Wealth Management, said he is also currently discussing the changes with his clients. He added: “Inheritance tax is often a blind spot with clients. The first step I take is to look at it and say does it actually have any impact? I find that most people haven’t fully grasped how this may affect them.
“From there I work through their individual scenario, their needs and lifespan to see where we may end up. From there we can look at insuring the tax bill or gifting money on to loved ones. Once you have that plan in place, some options open up, whilst others close off.”
Colin Low, Managing Director at Ipswich-based Kingsfleet, had some advice for those who are worried. He said: “At the moment – do nothing. The current rules still apply until April 2027 so anyone who was to die as a result of an accident or a sudden illness would still have the full value of their personal pension outside their estate.
“However, it would be wise to review arrangements in the second half of this year in preparation for the changes next Spring to ensure that your fund will be meeting its objectives for both the provision of income and to go to selected beneficiaries tax efficiently.”
At the time the changes were first announced, the Treasury said: “This change has been introduced to prevent pension schemes from being increasingly used and marketed as a tax planning vehicle to transfer wealth, rather than for their intended purpose of funding retirement.”
