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The Finance Act 2026 confirmed that most unused pension funds and death benefits will be included in the estate for IHT on deaths from 6 April 20271. For the past decade, sitting outside the estate made the pension the first pot to fund and the last to draw on. That logic now needs revisiting, but not for every client.
Start by ruling clients out
Paul Squirrell, Head of Retirement and Savings Development at Fidelity, points out that three groups can usually be set aside early:
- Clients with little or no interest in the IHT their estate may pay
- Younger clients who are still in the accumulation phase
- Clients already drawing as much as they can to meet their lifestyle needs, who are unlikely to leave unused funds
The first two are easy to identify. For the third, health information and existing cashflow statements should provide the evidence. Even so, it’s worth confirming that their expression of wishes is up to date in case funds are, unexpectedly, left over.
The remaining clients tend to fall into two groups: the wealthiest, who have used the pension as a tax-efficient home for surplus wealth intended for their heirs, and those on track for a pension that may exceed their lifetime needs. For the second group, the balancing act between funding retirement and reducing a taxable surplus is a delicate one.
Within both groups, the priority is older clients, or those in poor health, facing a large new IHT liability. They may need to decumulate quickly. Everyone else can be managed incrementally.
1. Compare the pension with the retirement the client wants
The current Retirement Living Standards put the cost of a comfortable retirement at £45,400 a year for one person and £62,700 for a couple, after tax2. On 2026/27 rates that is roughly £55,000 of gross income for an individual, or £72,000 for a couple with income split evenly. Allowing for full new State Pensions and a 4% withdrawal rate, it points to pension capital of around £1.05 million for an individual or £1.2 million for a couple.
This is a rough classification only. It assumes anyone engaged in IHT planning will want at least a comfortable retirement. Once you know which group a client sits in, personalised cashflow planning should follow.
Documents to review: Current Retirement Living Standards, retirement suitability report, latest annual review
2. Factor in life expectancy, household and income needs
Current age gives a starting point for how long the pension needs to last. The Office for National Statistics (ONS) figures below are averages and take no account of health3.
A couple will typically need less income per person than a single client, whilst any need to access the pension early will erode the capital available later. Where the pension is likely to deliver no more than a comfortable income, the case is unlikely to be urgent. Where it will comfortably exceed what the client could reasonably spend, particularly if life expectancy is short, review now.
Documents to review: Retirement income strategy, cashflow model
3. Map the whole estate, including the wrappers
Next, establish where new IHT liabilities will arise. Capture every asset: the main residence and other property, business and partnership interests, savings, ISAs and other investments, trusts, life cover not written in trust, personal possessions and gifts made in the past seven years.
Set this against the available allowances: the £325,000 nil-rate band, the £175,000 residence nil-rate band and, since 6 April 2026, the £2.5 million allowance for 100% Business Relief (BR) and Agricultural Property Relief (APR), which is transferable between spouses and civil partners4. Three technical points deserve attention:
- The wrapper matters. BR and APR will not be available on qualifying assets held inside a pension, such as business premises or farmland in a SIPP or SSAS5
- Not everything is caught. Death in service benefits, dependants’ scheme pensions and joint life annuities stay outside the charge. Benefits passing to a spouse, civil partner or charity remain exempt5
- Income tax is unchanged. Beneficiaries still pay tax at their marginal rate where the member dies at 75 or over, although not on the part of the fund used to pay IHT5
Documents to review: Fact-find, platform valuation statements, SIPP and SSAS files, trust deeds, BR and APR suitability reports, death benefit statements
4. Weigh up the options for decumulation
Once the potential liability is known, the planning options can be considered:
- Phased drawdown. Steady withdrawals reduce the pension over time and use the personal allowance and basic-rate band each year, rather than forcing large withdrawals at 40% or 45% later
- Lifetime gifts. Outright gifts take seven years to fall fully outside the estate, and the client gives up control immediately. Too large a gift could leave them short later in life
- Regular gifts from surplus income. These are immediately exempt where the conditions are met, so keep records of income, expenditure and the pattern of gifts
- Reinvesting in BR-qualifying assets. Relief is available after two years and the client keeps ownership, but capital is at risk and 100% relief is now limited to the allowance
- Trusts. These can remove value from the estate, which may also help to preserve the residence nil-rate band, whilst offering some income or control
Documents to review: Retirement income strategy, drawdown suitability report, cashflow model, meeting notes on gifting intentions
5. Get the administration right
- Liquidity. Personal representatives will be responsible for reporting and paying IHT on a pension they do not control. They can ask the scheme to withhold up to 50% of the benefits for up to 15 months, and beneficiaries can ask the scheme to pay HMRC directly5. Property-heavy estates still need a plan
- Nominations. Benefits above the nil-rate band left to children, grandchildren, cohabitees or trusts will be taxable, so revisit who is nominated
- Wills and letters of wishes. Changes to executors or beneficiaries may need to be reflected in both
- Other professionals. Speak to the client’s solicitor and accountant before changing course. Their input on wills and business planning will be valuable
Documents to review: Expression of wishes, provider nomination records, will, protection policy schedules, trust deeds
No single action will resolve every case. Identifying the right clients early gives advisers the time to make considered, incremental changes rather than rushed ones.
For more support on preparing clients for the changes, or to discuss how our solutions can support your planning approach, our team is ready to help. Book a meeting with your local BDM.
SOURCES
1. Finance Act 2026 (Royal Assent 18 March 2026); HMRC, Inheritance Tax: unused pension funds and death benefits, 26 November 2025, gov.uk
2. Pensions UK, Retirement Living Standards, June 2026, retirementlivingstandards.org.uk
3. Office for National Statistics, National life tables: UK, 2022 to 2024, 10 December 2025, ons.gov.uk
4. HM Treasury, changes to Agricultural Property Relief and Business Relief, December 2025, gov.uk
5. Royal London, IHT: pension death benefits from April 2027, updated 29 July 2026, adviser.royallondon.com
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