From April 2027, unused pension funds are expected to be brought within an individual’s estate for inheritance tax purposes. For many families, this makes reviewing existing estate plans increasingly important.
For many years, pensions have been one of the most effective ways to pass wealth between generations. Combined with inheritance tax reliefs, they have allowed families to structure wealth efficiently while retaining flexibility and control.
That landscape is changing. Recent reforms to Agricultural Property Relief and Business Property Relief have already altered the planning environment for many business owners, landowners and farming families. From April 2027, unused pension funds and death benefits are expected to form part of an individual’s estate for inheritance tax purposes, bringing a significant asset class into the IHT net.
For many families, the question is no longer whether they have an inheritance tax issue. The question is whether they have a plan.
Estate Planning Has Become a Family Planning Exercise
Historically, many individuals focused on preserving pension wealth for future generations while spending other assets first. With pensions expected to become subject to inheritance tax from April 2027, that strategy may no longer be as attractive as it once was.
As a result, more families are exploring earlier wealth transfers while retaining sufficient assets to maintain their own lifestyle and financial security.
The objective is rarely to avoid tax alone. More often, clients want to:
- Help children and grandchildren sooner.
- Reduce future inheritance tax liabilities.
- Maintain control and structure around gifted assets.
- Improve the overall tax efficiency of family wealth.
- Create a lasting financial legacy.
Why Delay Can Reduce Your Options
One of the biggest challenges with inheritance tax planning is that many strategies require time. Lifetime gifts may take years to achieve their full effectiveness, while changes to ownership, trusts, insurance or business structures often require careful coordination. Delaying a review can reduce flexibility, narrow the range of available options and leave families making important decisions under pressure.
Good planning is not about rushing into action. It is about understanding your position and creating a framework that can adapt over time.
Structured Gifting: More Than Simply Giving Money Away
One area receiving increased attention is gifting from surplus income.
Where gifts are made regularly from excess income, form part of normal expenditure and do not affect the donor’s usual standard of living, they may qualify for an exemption from inheritance tax without the donor needing to survive for seven years. Careful record-keeping is essential.
This can create an opportunity for individuals who have more income than they require to support younger generations in a tax-efficient manner. However, an equally important question is where that money goes once it has been gifted.
Using Tax-Efficient Wrappers to Build Long Term Family Wealth
Rather than making unrestricted cash gifts, some families are choosing to use tax-efficient structures such as:
- Junior SIPPs for children.
- Lifetime ISAs for eligible younger adults.
- Pension contributions for adult children and grandchildren.
These solutions can encourage long-term saving, benefit from available tax advantages and help ensure that funds are used for their intended purpose. They may also help younger family members facing rising property costs, pressure on disposable income and the challenge of building adequate retirement savings.
The combination of tax efficiency, long-term compounding and behavioural discipline can materially improve outcomes over time, although access rules, contribution limits and eligibility requirements must be considered carefully.
Philanthropic and Charitable Giving
For those with charitable intentions, pension and surplus income planning can also provide an opportunity to give philanthropically. Charitable gifts may benefit from tax relief, reduce the value of an estate for inheritance tax purposes and allow wealth to be used during lifetime in a way that reflects personal values and brings real satisfaction.
Looking Beyond Tax
The most successful inheritance tax plans rarely focus solely on reducing a future tax bill. Instead, they are built around broader questions:
- How much is enough for you and your family?
- What lifestyle do you want to maintain?
- What support would you like to provide during your lifetime?
- How should assets pass between generations?
- What legacy do you want to leave?
This is where integrated planning becomes valuable. Financial planners, accountants and solicitors each bring a different perspective, helping families understand ownership structures, model future outcomes and coordinate an effective strategy.
Why Reviewing Your Plan Now Matters
Estate planning is not something to leave until a tax charge feels imminent. Family circumstances, asset values, business interests and personal priorities can all change over time, so plans should be reviewed regularly rather than only in response to a new rule.
The expected inclusion of unused pension assets and death benefits within estates for inheritance tax purposes from April 2027 is another reason to reassess how pensions fit alongside the wider estate. However, the case for reviewing a plan is broader: delay can affect gifting timescales, succession planning, liquidity and the ability to coordinate decisions across the family and their professional advisers.
For some, the appropriate solution may involve gifting. For others, it may involve trust planning, insurance, pensions, business restructuring, or simply reviewing existing arrangements. The right answer will always depend on individual circumstances.
The greatest risk may be allowing an estate plan to become outdated. A timely review can preserve choice, identify gaps and create the space to build a plan around what matters most.
Glossary of Key Terms
A simple guide to the key financial planning terms used in this article.
| Term | Explanation |
| Inheritance Tax (IHT) | A tax that may be payable on the value of your estate when you die. |
| Estate | Everything you own, including property, savings, investments and pensions, less any debts or liabilities. |
| Estate Planning | Organising your financial affairs so your assets can pass to the people or causes you choose. |
| Inheritance Tax Planning | Reviewing your assets and arrangements to manage a potential inheritance tax liability while protecting your own financial security. |
| Lifetime Gift | Money or assets given to another person during your lifetime. |
| Gifting from Surplus Income | Regular gifts made from income you do not need to maintain your normal standard of living. If the relevant conditions are met, these gifts may be exempt from inheritance tax. |
| Tax-Efficient Wrapper | An account or product with particular tax advantages, such as a pension or ISA. |
| Junior SIPP | A pension set up for a child to build retirement savings from an early age. |
| Lifetime ISA (LISA) | An account for eligible adults saving towards a first home or later life, which may receive a government bonus. |
| Business Property Relief (BPR) | An inheritance tax relief that may reduce the taxable value of qualifying business assets. |
| Agricultural Property Relief (APR) | An inheritance tax relief that may reduce the taxable value of qualifying agricultural property. |
| Trust | A legal arrangement in which trustees hold and manage assets for one or more beneficiaries. |
| Death Benefits | Money or benefits paid following a person’s death, often from a pension or life assurance policy. |
| Succession Planning | Planning how wealth, property or a business will pass to the next generation. |
| Liquidity | Cash, or assets that can readily be converted into cash, to meet expenses or tax liabilities. |
These explanations are simplified and provided for general information only. Tax and legal treatment depends on individual circumstances and may change.
