For many years, pensions have been regarded as one of the most tax-efficient ways to pass wealth to future generations.
Under the current rules, pension funds generally fall outside of your estate for inheritance tax purposes. This means that, regardless of the value of your pension, it would not usually be included when calculating inheritance tax on your death.
However, this position is expected to change from April 2027.
What do the new changes mean for you?
Under the proposed new rules, many pension funds are likely to be included within the inheritance tax calculation on death, potentially increasing the inheritance tax liability for many families.
Importantly, while pensions may become subject to inheritance tax, they will not necessarily pass in accordance with the terms of your Will. Most pensions are held within trust arrangements, meaning that pension trustees or scheme administrators will normally decide who receives the pension benefits. In doing so, they will take into account any nomination form or expression of wishes you may have completed.
As a result, the beneficiaries of your pension could be entirely different from those named in your Will.
What do I need to do to mitigate these changes?
Now is the ideal time to review your arrangements. Whilst you may already have carefully prepared Wills, trusts and estate plans in place, these may not fully reflect the position of your pension benefits. Many people have not reviewed their pension nominations for years and, in some cases, death benefits may still be directed to former spouses, outdated trusts or arrangements that no longer align with current wishes or wider tax planning objectives.
Our experts at Marlborough Law can advise on Wills, trusts and inheritance tax planning, while your independent financial adviser or pension adviser can review your pension arrangements, beneficiary nominations and retirement planning. Increasingly, these areas overlap and often achieve the best outcomes when advisers work collaboratively.
By ensuring your legal and financial advisers work together, it may be possible to:
- ensure your assets pass to the right people;
- review whether your existing Will remains suitable;
- consider whether trusts may be beneficial;
- review pension nomination forms and expressions of wishes;
- improve inheritance tax efficiency; and
- help avoid unintended consequences for your family.
No time like the present…
Although April 2027 may seem some way off, effective estate planning should rarely be left until the last minute. Seeking advice early provides valuable time to review your affairs thoroughly and consider the options available to you.
How Marlborough Law Can Help
If you would like to review your Will, estate planning or inheritance tax position in light of the forthcoming pension changes, our Private Client team would be pleased to assist and, where appropriate, work alongside your financial adviser.
