2027 Inheritance tax changes: How you and your family can get the most out of the changes

On the 6th of April 2027, leftover private pension pots will be included in estate valuations for Inheritance Tax.

With the changes HMRC is making to the inheritance tax system in 2027, the assumption that a pension is safe from inheritance tax will be broken. Many families are going to be stuck on what to do with the money of relatives, and this can be an extra weight, especially when grieving.

Tobias Robinson, CEO of DayTrading.com, has provided some tips to those with a pension set up and their respective families on how they can get the most out of these changes.

Don’t “set and forget” your pension

For decades now, the pension was a “tax-free” shelter, and many pension pots have been left unused and untouched with the belief that the money inside them will be untouched as well.

As of 2027, that time is coming to an end, and now keeping money in a pension for use in inheritance will be a much higher-risk strategy than before.

Fund your retirement earlier with ISA growth

Before, it was usually a good idea to spend savings (ISAs) first and leave your pension untouched, but this idea will soon become outdated.

If your pension is likely to push the total value of your estate over the inheritance tax threshold, it may be worth prioritising ISA growth and using your pension income earlier to fund your retirement so less of it is at risk of that 40% tax charge.

Take control of your records

After the changes, it will be the executor’s job to report pension values to HMRC. If they cannot find or access your pension accounts, this can lead to delays or even fines.

Create a secure digital log of all the details about the pension schemes you have held, including policy numbers and contact details, and make sure the executor knows where they can find this information when it comes to it being needed.

Make sure your nominations are up to date

Many people haven’t checked whether their pension nominations are up to date in years, and with these changes to the system, you will need to check whether they still make sense. If you had your sights on passing your pension directly to your children, you should keep in mind that the plan now involves getting a 40% tax hit.

Make the most of gifting while living

Rather than exposing all your funds to tax in your pension, consider gifting surplus amounts to family right now. You could help with major life stages, such as putting a deposit down on a house or funding their university education. Assets given away more than seven years before death generally are removed from your estate completely.

Look after yourself right now

Don’t let planning for taxes get in the way of your current financial security. Make sure you have enough wealth to fund your own retirement and any future care costs before giving everything away. It might be worth doing some planning ahead with a financial advisor to give you a more stress-free outlook on the future.