From April 2027, most unused pension funds and pension death benefits will be brought
into your estate for Inheritance Tax purposes.
That change is already coming.
And for some successful business owners and families, I think it raises a fairly important
question:
Does the estate plan you put in place a few years ago still do what you think it does?
For years, pensions have often been treated differently from other family wealth when
planning for inheritance.
I’ve spoken to people who have deliberately spent other investments first and left their
pension untouched.
Why?
Because they expected their children to inherit it.
From April 2027, that calculation changes.
It doesn’t mean pensions are suddenly a bad place to hold money.
It doesn’t mean you should rush to withdraw your pension.
And it certainly doesn’t mean making major financial decisions because we’re
approaching another Budget.
But it does mean that some long-standing plans need another look.
Imagine you’ve built a successful business over 25 or 30 years.
Alongside it, you’ve accumulated a substantial pension, investments, your home and
perhaps other property.
You may have spent years thinking about those things separately.
Your business was your business.
Your pension was for retirement — or perhaps eventually for the children.
Your investments were another pot.
Your estate plan dealt with everything else.
I don’t think you can look at it that way anymore.
Your business, pension, investments and property all need to be considered as part of
the same family balance sheet.
And that becomes particularly important if you’re approaching the sale of your company.
Selling a business can change the nature of your wealth considerably.
At the same time, bringing unused pensions into the estate from April 2027 could
increase the amount exposed to Inheritance Tax.
So before worrying about what the Chancellor might announce next, I’d ask yourself a
few simpler questions.
Why am I leaving my pension untouched?
If the answer is “because I want my children to inherit it”, does that strategy still make
sense?
How much money am I realistically going to need?
If you’ve accumulated more than you could reasonably spend, should some of that
wealth reach your family earlier?
What would my estate actually look like under the April 2027 rules?
Not a rough estimate. The business, pension, investments, property and cash together.
And perhaps most importantly:
When was the last time anybody looked at the whole picture?
That’s the bit I think can easily get missed.
People have a pension adviser, an accountant, a solicitor, a will, investments and
perhaps somebody advising on the business.
But that doesn’t necessarily mean somebody has looked at how everything works
together.
With another Budget approaching, there will inevitably be headlines about tax.
Some will turn out to be right.
Others won’t.
I wouldn’t make an irreversible financial decision because of Budget speculation.
But I also wouldn’t wait for another announcement to discover that a plan based on
yesterday’s rules no longer works.
The pension change is already coming.
For me, that’s reason enough to review the plan.
Not to panic.
Not necessarily to change anything.
Just to answer one important question:
If I did nothing, would my wealth still pass to my family in the way I intended?
If you’re not sure, that’s probably a conversation worth having with me.
Paul Buckley
Independent Financial Adviser, Buckley Financial Services
Tax treatment depends on individual circumstances and may change. This post is for
general information and isn’t personal financial, tax or legal advice.