Sunir Watts and Vanina Wittenburg examine pension changes and estate planning implications in FT Adviser
Sunir Watts, and Vanina Wittenburg's article was published in the FT Adviser, 14 August 2025, and can be seen here.
Sunir Watts, Partner and Vanina Wittenburg, Senior Associate in our Private Client department, examine the significant changes to pension treatment in estate planning following the October 2024 Budget.
Historically, pensions have been a tax-efficient tool, falling outside the scope of inheritance tax (IHT) and allowing beneficiaries to receive funds without probate. However, from 6 April 2027, most pensions will be brought into the IHT net, fundamentally altering their role in estate planning. This shift follows a government consultation and response, marking a departure from the 2014 rules that allowed pensions to pass tax-free to nominated beneficiaries.
Under the current regime, pension death benefits are typically excluded from the deceased’s estate for IHT purposes, provided trustees exercise discretion in their distribution. This has enabled individuals to nominate non-exempt beneficiaries, such as children or grandchildren, to receive lump sums without incurring IHT.
The flexibility and efficiency of this system have made pensions a cornerstone of estate planning strategies, particularly for those with substantial pension savings. Trustees usually follow the member’s nomination form, ensuring the intended recipients benefit with minimal administrative burden.
The upcoming changes will introduce new complexities. From 2027, pension assets will be treated more like other estate assets, potentially subjecting them to IHT and requiring more involvement from personal representatives.
Sunir and Vanina highlight that this will necessitate a reassessment of estate planning strategies, especially for married couples who previously relied on pensions to pass wealth tax-efficiently. The use of surplus income exemptions and timely gifting may become more important tools in mitigating IHT liabilities under the new framework.
Read the full article on the FT Adviser website [external link].