Introduction
If you have £300,000 or more in pensions, the April 2027 Inheritance Tax changes should be on your radar.
From 6 April 2027, most unused pension funds are due to be brought within the scope of Inheritance Tax. For families with substantial pension wealth, this could increase the eventual inheritance tax exposure of the estate and may also interact with other allowances.
The obvious reaction might be:
“Should I start taking money out of my pension?”
But acting before understanding the wider consequences could create a different problem.
Before making changes, there are at least six strategies worth investigating.
1. Restructure Your Pension
Could your existing pension structure be changed to provide greater flexibility or additional estate-planning opportunities?
Not every pension operates in the same way. Before withdrawing funds, it is worth understanding what your existing structure allows and whether alternative arrangements warrant investigation.
2. Consider an Annuity
An annuity converts pension capital into a guaranteed income, typically for life.
For some individuals, using part of a pension to secure lifetime income could alter the amount ultimately remaining within the pension.
That does not make an annuity automatically appropriate, but it is one of the options that may deserve consideration as part of the wider picture.
3. Strategic Drawdown
The question isn’t simply:
“Should I take money out of my pension?”
The more important questions can be how much, when, and what happens to the money afterwards.
Moving money from a pension into cash without a clear purpose could simply move wealth from one part of the estate to another.
Any drawdown strategy therefore needs to consider Income Tax, investment requirements, expenditure, gifting and the wider estate.
4. Business Relief
Capital held outside a pension could potentially be invested into assets that qualify for Business Relief, subject to the relevant legislation, investment risks and qualifying requirements.
This is a specialist area and should not be viewed simply as an inheritance tax solution.
However, for appropriate investors, Business Relief may be one of the areas worth investigating within a broader estate-planning assessment.
5. Redirect Future Growth
For larger estates, one of the questions is not simply what happens to the wealth you have accumulated today.
It is also:
Where will the next 10 or 15 years of growth accumulate?
Where appropriate planning is possible, separating today’s wealth from tomorrow’s growth can potentially have a significant long-term effect on the eventual size and structure of an estate.
6. Specialist Pension Restructuring
Estate Architect is currently working with a specialist pension provider on a specific solution for clients potentially affected by the April 2027 changes.
It approaches the pension and inheritance tax issue differently from some of the more traditional strategies described above.
We believe it warrants investigation in appropriate circumstances, but suitability will depend upon the individual’s pension, wider estate and objectives.
Don’t Panic and Start Withdrawing Money
The important point is not to panic and start withdrawing pension money simply because the rules are changing.
You may decide to research these strategies yourself or discuss them with your existing adviser.
But the important thing is to understand your options before acting.
Pensions, Income Tax, Inheritance Tax, investments, trusts, company structures and family succession can all interact.
Solving one problem in isolation can sometimes create another.
Looking at the Complete Estate
That is why Estate Architect looks beyond an individual pension.
We examine how the different components of an estate fit together and coordinate with appropriate specialist professionals, including regulated pension specialists, where regulated pension advice is required.
The objective is to identify the areas that warrant further investigation before decisions are made.
If you have a substantial pension and want to investigate your position before April 2027, contact Estate Architect and quote “PENSION”.
This article is provided for general educational purposes only and does not constitute financial, pension, investment, tax or legal advice. Pension and tax rules can change and individual circumstances differ. Regulated pension and investment advice should be obtained from an appropriately authorised professional where required.