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Clement Cowley, Partner at The Penny Group, discusses the upcoming changes to pensions and Inheritance Tax and the potential impact on your financial future
For many years, pensions have occupied a privileged position in estate planning. While they have always been subject to their own tax rules, they have generally sat outside an individual’s estate for Inheritance Tax (IHT) purposes. That long-standing position is set to change from April 2027.
The government’s proposals, first announced in the Autumn Budget 2024, will bring most unused pension funds into scope for IHT calculations. Draft legislation was published in July 2025 and, while some details are still being refined, the direction of travel appears clear.
For professionals who have built significant pension wealth over the course of their careers, these changes could have important implications.
Historically, pensions have often been viewed as an efficient way of passing wealth between generations. Many individuals have chosen to preserve pension assets while drawing income from other investments, allowing pension funds to remain available for beneficiaries.
From April 2027, however, most unused pension funds will be included when calculating the value of an estate for IHT purposes.
Consider a simplified example. An individual with a property worth £450,000, other assets of £60,000 and a pension fund valued at £350,000 currently has an estate worth £510,000 for IHT purposes. Under today’s rules, the pension is excluded. Under the proposed rules, the same estate would be valued at £860,000, potentially creating a significantly larger IHT liability.
These changes also highlight the importance of having a clear overall income strategy when approaching retirement. Understanding how pensions, investments and other assets should work together can help ensure retirement income decisions also support wider estate planning objectives.
The proposals introduce more than just a potential tax increase.
Responsibility for reporting and paying IHT will largely fall to personal representatives of the estate rather than pension providers. This creates additional administrative requirements and may require greater information sharing between executors, beneficiaries and pension administrators.
There may also be situations where pension beneficiaries and estate beneficiaries are not the same people. This raises questions over who ultimately bears the tax burden and how liabilities are settled. It may therefore be an appropriate time to review pension beneficiaries and how funds are intended to be received.
Importantly, the changes do not mean effective estate planning disappears.
A number of established strategies remain available depending on individual circumstances. These may include making gifts, utilising exemptions, considering trusts, arranging appropriate insurance solutions or exploring investments that may qualify for relief from IHT.
Effective planning often begins not with tax mitigation, but with a clear understanding of personal objectives, family priorities and long-term financial security. It is equally important to understand which assets are likely to be needed during your lifetime and which are intended for future generations.
The proposed pension changes are a reminder that tax rules evolve, and arrangements that were appropriate five or ten years ago may no longer deliver the same outcomes.
For barristers and other professionals whose wealth has accumulated through years of successful practice, now may be an appropriate time to review existing arrangements. Understanding the potential impact of the new rules before they take effect could provide greater choice and flexibility.
While nobody can predict future legislation with certainty, proactive financial planning remains one of the most effective ways to help ensure wealth is distributed according to your wishes and that your family is as prepared as possible for the years ahead.
You can find out more about financial planning for barristers here or call 020 7061 2345.
Awarded ‘London Financial Adviser Firm of the Year’ at the 2025 Professional Adviser Awards, The Penny Group is a Chartered Financial Planning Firm based in the City of London, with offices in Surrey, the Midlands and Berkshire.
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
The Penny Group Ltd is an appointed representative of The Openwork Partnership, a trading style of Openwork Limited which is authorised and regulated by the Financial Conduct Authority.
Approved by The Openwork Partnership on 16/06/2026.
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Clement Cowley is a founding Partner of the Penny Group and a Chartered Financial Planner. He joined the financial services industry immediately after graduating from Manchester University. Clement has accumulated over 17 years of experience and extensive knowledge in financial planning.
For many years, pensions have occupied a privileged position in estate planning. While they have always been subject to their own tax rules, they have generally sat outside an individual’s estate for Inheritance Tax (IHT) purposes. That long-standing position is set to change from April 2027.
The government’s proposals, first announced in the Autumn Budget 2024, will bring most unused pension funds into scope for IHT calculations. Draft legislation was published in July 2025 and, while some details are still being refined, the direction of travel appears clear.
For professionals who have built significant pension wealth over the course of their careers, these changes could have important implications.
Historically, pensions have often been viewed as an efficient way of passing wealth between generations. Many individuals have chosen to preserve pension assets while drawing income from other investments, allowing pension funds to remain available for beneficiaries.
From April 2027, however, most unused pension funds will be included when calculating the value of an estate for IHT purposes.
Consider a simplified example. An individual with a property worth £450,000, other assets of £60,000 and a pension fund valued at £350,000 currently has an estate worth £510,000 for IHT purposes. Under today’s rules, the pension is excluded. Under the proposed rules, the same estate would be valued at £860,000, potentially creating a significantly larger IHT liability.
These changes also highlight the importance of having a clear overall income strategy when approaching retirement. Understanding how pensions, investments and other assets should work together can help ensure retirement income decisions also support wider estate planning objectives.
The proposals introduce more than just a potential tax increase.
Responsibility for reporting and paying IHT will largely fall to personal representatives of the estate rather than pension providers. This creates additional administrative requirements and may require greater information sharing between executors, beneficiaries and pension administrators.
There may also be situations where pension beneficiaries and estate beneficiaries are not the same people. This raises questions over who ultimately bears the tax burden and how liabilities are settled. It may therefore be an appropriate time to review pension beneficiaries and how funds are intended to be received.
Importantly, the changes do not mean effective estate planning disappears.
A number of established strategies remain available depending on individual circumstances. These may include making gifts, utilising exemptions, considering trusts, arranging appropriate insurance solutions or exploring investments that may qualify for relief from IHT.
Effective planning often begins not with tax mitigation, but with a clear understanding of personal objectives, family priorities and long-term financial security. It is equally important to understand which assets are likely to be needed during your lifetime and which are intended for future generations.
The proposed pension changes are a reminder that tax rules evolve, and arrangements that were appropriate five or ten years ago may no longer deliver the same outcomes.
For barristers and other professionals whose wealth has accumulated through years of successful practice, now may be an appropriate time to review existing arrangements. Understanding the potential impact of the new rules before they take effect could provide greater choice and flexibility.
While nobody can predict future legislation with certainty, proactive financial planning remains one of the most effective ways to help ensure wealth is distributed according to your wishes and that your family is as prepared as possible for the years ahead.
You can find out more about financial planning for barristers here or call 020 7061 2345.
Awarded ‘London Financial Adviser Firm of the Year’ at the 2025 Professional Adviser Awards, The Penny Group is a Chartered Financial Planning Firm based in the City of London, with offices in Surrey, the Midlands and Berkshire.
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
The Penny Group Ltd is an appointed representative of The Openwork Partnership, a trading style of Openwork Limited which is authorised and regulated by the Financial Conduct Authority.
Approved by The Openwork Partnership on 16/06/2026.
Clement Cowley, Partner at The Penny Group, discusses the upcoming changes to pensions and Inheritance Tax and the potential impact on your financial future
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