How will the 2027 pension Inheritance Tax changes affect financial adviser conversations?

If you’re an adviser, I’d imagine you’ve got quite a few clients whose pensions have never been considered as part of the Inheritance Tax conversation.

You’ve looked at the house, savings and investments, worked through the allowances and, in a lot of cases, probably concluded there isn’t much of an IHT problem to worry about.

From April next year, big changes are coming. So from now, I’d be going back through some of those clients.

From 6 April 2027, most unused pension funds and death benefits will be brought into estates for Inheritance Tax purposes. That’s a big change, and HMRC estimates around 10,500 estates will end up paying IHT in 2027/28 that wouldn’t have done without it. Another 38,500 estates are expected to pay more.

So if I were an adviser, I wouldn’t be waiting until April to find out which of my clients are among them. I’d start looking now.

Start by going back to the clients you’ve previously ruled out of an IHT conversation

These are probably the clients I’d look at first. There will be people on your books where you’ve looked at their house, savings and investments and thought they’re comfortably outside the IHT net. Now add the pension.

Someone could have a £600,000 property, £150,000 across savings and investments and another £400,000 sitting in a pension. Obviously, the actual IHT position will depend on their circumstances, allowances, who they’re leaving everything to and a whole host of other things.

But you can see how adding the pension suddenly changes the conversation. In these cases, it may be time to pick up the phone.

Some clients are going to ask why the advice has changed

I think advisers need to be ready for a slightly awkward conversation here too. There will be clients who say: “But you told me my pension sat outside my estate.”

And the answer is that, under the current rules and depending on the type of pension, it generally does. What has changed isn’t necessarily the advice they were given at the time, it’s the changes they’re going to face from April 2027.

If they were deliberately preserving their pension because they wanted to leave it to their children, how does their financial planning change? If they were spending other assets first because the pension was exempt from Inheritance Tax, is that still the right approach?

I’m not saying that everybody should suddenly start taking money out of their pension before April. That could create a completely different tax problem and, more importantly, the pension still needs to fund the client’s retirement. But I’d definitely revisit the conversation.

The plan may still be absolutely fine. I’d just want to know that we’ve looked at it again under the rules that are actually going to apply from this coming April.

Don’t just work out the new IHT bill

This is where I’d probably take the conversation one step further. Once you’ve worked out that the changes could increase a client’s IHT exposure, don’t stop at telling them the number.

Ask how the estate would actually pay it. That’s something we talk about a lot at Provira because estate value and estate liquidity are very different things.

A client might have a £900,000 house, a medium sized pension and relatively little sitting in cash. On paper, they’re wealthy. But when they die, their executor isn’t dealing with wealth on paper. They’re dealing with bills that need paying and assets that may take time to access.

So if the pension changes take a client’s projected IHT liability from, say, £20,000 to £70,000, I’d want to know where that extra £50,000 is actually going to come from.

There will be estates where that’s an easy question to answer and there will be others where it isn’t. Those are the clients I’d want to find now.

I wouldn’t turn this into a reason to scare clients before April

Whenever there’s a tax change coming, there is a temptation to turn the date into a deadline. You need to do something before 6 April. I don’t think that’s necessarily helpful here.

Some clients may need to make changes, others may look at everything with their adviser and decide they’re perfectly happy with the plan. 

I suppose it depends on what their aims are: Does the client still want to preserve the pension? Does their retirement income strategy still make sense? Has their potential IHT bill changed? And if it has, would the estate actually have enough accessible cash to deal with it?

That’s a much better conversation than “Pensions are going into IHT, what are we going to do?”

Estate finance doesn’t need to be the answer to be part of the conversation

The same goes for estate finance. I don’t think advisers should be talking to clients now and saying they’ll need an Estate Advance because of a tax bill that might not pop up for a few years.

What I do think is useful is making sure the client knows there are options if their executors eventually find themselves with plenty of estate value but not enough cash.

There may be money that can be accessed from elsewhere in the estate, paying IHT by instalments may be an option for some assets, a grant on credit might make sense, the pension itself may provide part of the answer. And in some cases, estate finance could help.

At Provira, our Estate Advance allows executors to access some of the value tied up in an estate earlier, including where funds are needed to deal with an IHT liability.

Sometimes that will be useful. Sometimes it won’t. But as with most things around estate liquidity, I’d rather the adviser and client knew the option existed before they needed it.

So what would I be doing before April?

I wouldn’t be going through every client on the books and trying to manufacture an IHT conversation. I’d start with the obvious ones.

Look at clients with big pensions, look again at people who are already somewhere near the IHT thresholds, look at clients who have deliberately preserved their pension because of the way it was treated on death.

Sometimes you’ll do all of that and decide nothing needs to change. But HMRC expects thousands of estates to be pulled into IHT for the first time by these rules, and tens of thousands more to pay extra tax.

I’d rather identify those clients now than have the first conversation about it after the 6th of April.

And if you’re looking at a client’s estate and can see that the pension changes could create a future liquidity problem, that’s exactly the sort of conversation we’re happy to have at Provira.

You don’t need to know whether an Estate Advance will ever be needed. Book a call with our team, talk us through the estate and we can help you understand where estate finance might fit if accessing cash does eventually become an issue.

About Provira

Provira is the UK’s most established provider of inheritance and estate advances, trusted by hundreds of financial advisers and brokers. We’ve supported thousands of families, advancing £20,000 to over £1 million to help cover IHT, legal fees and personal needs – quickly, securely, and without personal guarantees or property charges.

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