For years, many financial plans have been built around a simple assumption:

Keep your pension intact for as long as possible. Spend other assets first. Pass your pension wealth to the next generation.

It wasn’t necessarily what pensions were designed for, but it was often one of the most tax-efficient ways to transfer wealth. Now, that long-standing assumption is being challenged. Under the Government’s proposed changes, expected to take effect from 6 April 2027, most unused pension funds could be brought within the scope of Inheritance Tax, fundamentally changing how many business owners, entrepreneurs and wealthy families think about long-term planning.

Here’s what’s changing in 2027

From 6 April 2027, subject to the legislation being enacted, the Inheritance Tax treatment of pensions is set to change significantly.

Under the proposed rules, most unused pension funds and death benefits will be brought into the scope of Inheritance Tax. This means pension wealth that has historically sat outside an individual’s estate could become liable to Inheritance Tax as part of the estate, potentially at rates of up to 40%, depending on the overall value of the estate and the reliefs and allowances available. Importantly, this change is expected to apply regardless of whether death occurs before or after age 75.

There is one notable exception. Where an individual dies before age 75, beneficiaries should still be able to access inherited pension funds free from Income Tax, as is currently the case. However, the pension fund itself may first be subject to Inheritance Tax as part of the estate.

For many individuals and families, pensions have become a key part of long-term estate planning. Bringing them into the Inheritance Tax regime removes one of the most tax-efficient ways of passing wealth between generations and could significantly increase the tax payable on death.

HMRC estimates that around 10,500 additional estates will become liable to Inheritance Tax as a result of these changes, with many more expected to see an increase in their overall Inheritance Tax exposure.

The real issue isn’t simply tax, it’s strategy.

Whenever tax rules change, the headlines focus on winners and losers, but in reality, the bigger question is usually “Does my existing plan still make sense?”

Many people have deliberately structured their affairs around the idea that pension wealth sits outside their estate.

That has influenced decisions around:

• Retirement income
• Investment portfolios
• Gifting strategies
• Trust structures
• Succession planning

But with pensions potentially becoming subject to Inheritance Tax under the proposed rules, it’s worth asking whether those decisions still reflect your objectives.

A generation of business owners could be particularly exposed

For many entrepreneurs, pensions represent far more than retirement savings. They are often the result of decades of careful planning – profits extracted tax efficiently, sale proceeds invested following an exit, and long-term wealth accumulated with future generations in mind.

It is not uncommon for successful business owners to have accumulated significant wealth within pension arrangements, so as those assets become exposed to Inheritance Tax, the impact could be significant.

Why existing plans deserve a second look

The biggest risk may not be paying more tax, rather assuming a strategy built around yesterday’s rules will continue to deliver tomorrow’s outcomes.

We often see individuals who haven’t reviewed their estate planning for years because the existing structure was working perfectly well, but estate planning isn’t something you do once and forget.

The most effective strategies evolve alongside:

• Changes in legislation
• Changes in wealth
• Changes in family circumstances
• Changes in personal objectives

A plan that made perfect sense five years ago may not be the right plan today.

So, what should people be considering?

In reality, there is no universal answer but the areas worth reviewing include:

How pension wealth fits into your wider estate

Too many people look at pensions in isolation, the better approach is to understand how pensions interact with:

• Property
• Investments
• Business interests
• Trusts
• Family wealth

Only then can you make informed decisions.

Does your overall estate planning strategy still make sense?

Many individuals have intentionally preserved pension wealth because of its favourable Inheritance Tax treatment. With the proposed changes, it may be appropriate to review whether existing retirement and estate planning strategies continue to meet your objectives. Any decisions should be considered alongside appropriate financial and investment advice where required.

Gifting and succession planning

The proposed changes may increase the importance of lifetime planning. For some families, this could mean reviewing gifting strategies, trust arrangements or wider succession plans to ensure they remain aligned with long-term objectives.

Don’t let the tax tail wag the dog

Whenever tax rules change, there’s a temptation to react quickly, but the best planning decisions are rarely driven by tax alone. Rather, they are driven by what you’re actually trying to achieve.

Are you trying to maximise retirement security?

Would you like to support children or grandchildren during your lifetime?

Is preserving wealth across generations a priority?

Or is flexibility important?

Tax is part of the equation, but it should never become the entire strategy.

The bigger lesson

The proposed pension changes highlight something we often tell clients – that good financial and tax planning isn’t about chasing today’s rules, it’s about building a strategy that can adapt when the rules change, because tax policy has become an increasingly important political lever, and we’re rarely far away from the next change. The most resilient plans are those designed to evolve alongside them, rather than relying on a single set of assumptions indefinitely.

Looking ahead

If pensions form a significant part of your family’s wealth, now is a sensible time to review how these proposed changes could affect you, not because you need to take immediate action, but because better decisions start with better information.

How Wilson Partners can help

The proposed changes to the Inheritance Tax treatment of pensions may mean existing estate plans deserve a second look.

At Wilson Partners, we help individuals, business owners and families review existing estate planning, understand the impact of proposed tax changes and identify where plans may need updating. Where appropriate, we work alongside your financial adviser and solicitor to ensure your tax planning remains aligned with your wider objectives.