What the upcoming inheritance tax changes mean for your clients’ retirement and legacy planning

Planning considerations for different client profiles

• Married/Civil Partnered clients: Spousal exemptions and transferable nil-rate bands offer planning flexibility. Advisers should review whether a combined estate could exceed the £1 million IHT threshold post-2027, especially when pensions and residential property are involved. 
   
• Cohabiting clients: Unmarried couples face more immediate tax consequences, as allowances cannot be transferred, so assets passed between partners may attract IHT sooner. Estate equalisation and gifting strategies may become even more crucial here. 
   
• Single/widowed clients: Single/widowed clients have less flexibility and fewer mitigation options. They need to be clear who they wish to benefit so effective plans can be put in place. 
   
• Clients inheriting pensions: Inherited defined contribution pensions will now contribute to the beneficiary’s estate for IHT, affecting the long-term tax exposure for adult children or other heirs.
   
• Older clients (75+): In addition to the IHT implications, income tax will also apply to inherited pensions, which could mean a double hit. This makes the order and timing of withdrawals and bequests even more relevant. 

Actions that can be taken now

• Audit existing estate plans: Recalculate total estate values to include pensions and identify clients who can’t benefit from the IHT exemptions and exceed the IHT thresholds.
   
• Review beneficiary nominations: Ensure they reflect clients’ intentions and explore alternative structures where appropriate. 
   
• Consider intergenerational planning: Gifting during lifetime—from drawn pension income, ISAs, or trust structures—may help reduce future IHT liabilities without compromising retirement security. 
   
• Update cashflow models: Factor in both IHT and income tax changes for more accurate lifetime planning and wealth transfer forecasting.

Should clients include pensions in wills?

At this stage, there’s no indication that pensions need to be written into wills. Death benefit nominations will remain the primary mechanism for distribution. It’s expected that pension administrators will handle IHT reporting directly, but this may evolve as legislation finalises.
 

Conclusion

The Government’s proposal mean that pensions savings can no longer be used to transfer wealth free from IHT. This is a pivotal moment for advisers to deepen client conversations around legacy planning. By staying ahead of these reforms, you can help clients protect more of what they’ve worked hard to build. 

We’ll be sharing more of our insight and analysis to support your client conversations in this area.