Many of us are still thinking about the price hikes and tax changes that took effect this month, but you might want to think about next April.
There are some big changes coming to pensions, savings and investments, and there are things you can prepare for now and in the coming months.
One change that is on the minds of many older people – and keeping financial advisers and wealth planners very busy – is the “inheritance tax raid” on Rachel Reeves’ unspent pension money, which takes effect in just under a year.
That has prompted many to take action to avoid landing with a bill that, for some, can run into five or six figures.
Bringing unused pension pots within the scope of inheritance tax means that what was once seen as a tax only on the richest “is now firmly a middle-income issue,” says Rachael Griffin at investment firm Quilter.
Nicholas Nesbitt, a partner at accountancy firm Forvis Mazars, says that for families, “now is the time to plan. We are seeing clients change their planning strategy, increase retirement spending and accelerate gifting to reduce the tax bill”.
What’s going on?
At the moment, pension savings are not normally part of one’s estate for inheritance tax (IHT) purposes. But from April 2027, the amount left in a defined contribution (AKA money purchase) pension after you die will be IHT net. Most workplace pensions and all private pensions are of this type.
IHT is a tax that is paid on assets after someone dies if they leave enough to go above a certain threshold. The standard IHT rate is 40%, and is only charged on the part of the estate that is above the tax-free threshold, which is £325,000. (There is an additional allowance for households.)
The change means that “unused” pension savings can be taxed as part of one’s estate if they help take the total value of the estate over the IHT threshold. Unused savings are money that has not been used to claim income, such as by buying an annuity.
The IHT exemption for spouses or civil partners will continue to apply, so everything can be left to them without a bill. But other beneficiaries may face taxes.
What should I do now?
There are various options for those affected:
Spend more money. For those affluent older people who can afford it, perhaps the easiest way to reduce or reduce the potential IHT bill for their heirs is to spend more pension cash now on themselves and/or their relatives.
Like many financial planners, Val Stevens, a partner at wealth manager Killick & Co., has seen an increase in the number of seniors taking money out of their pensions to treat their family — for example, to go on a big vacation or take everyone out to dinner and a show.
But everyone’s circumstances are different, and it’s important to make sure you have enough money to support yourself in your post-retirement years.
Buy an annuity. One way to reduce unused money in your pension pot is to use some of it to buy an annuity. It is a product that provides you regular, guaranteed income for life (or for a fixed period). You can spend the money however you choose – including making a regular gift from the proceeds (see below).
Annuity sales are up: 2025 was a “record-breaking” year, and now they offer better value than ever.
However, you will need to consider whether you want an annuity that covers just you (a single life annuity) or one that provides income for your spouse, civil partner or other dependents after you die (joint life annuity).
You’ll also need to choose whether you want a level annuity, which will pay you the same income each year, or an increasing one, which will provide an increasing income each year.
This week, a 65-year-old who uses £100,000 of their pension savings to buy a basic single life level annuity could receive an annual income of around £7,800, rising to £8,500 and £9,700 at ages 70 and 75 respectively.
to give Money away The new laws have sparked a wave of “gifts”.
There are various allowances that people can use to make tax-free gifts. For example, you can give away up to £3,000 of assets or cash each tax year without having them included in the value of your property. This £3,000 can be given to one person or split between several people. And you can carry over any unused annual allowance to the next tax year – so two grandparents could each give someone £6,000, says Stevens.
A separate small gift allowance allows you to give maximum gifts of up to £250 to one person in each tax year, as long as you have not used another allowance to the same person. There is also an allowance for tax-free gifts for married or civil partner people.
In addition, the “potentially exempt transfer” rules allow you to make gifts or gifts of any amount or value, which will not attract IHT as long as you survive for seven years after giving them.
Another option is to start giving gifts out of regular income. You can give as much money as you want as long as it comes out of regular income rather than capital, and doesn’t affect the giver’s standard of living. “Examples could include paying school fees for a grandchild or contributing to a junior Isa,” says Helen Morrissey at investment platform Hargreaves Lansdown. This is not a straightforward area, so you may want to seek advice.
pay A grandchild under student debt Amid concerns about the millions of graduates saddled with student loan debt, you might want to help pay off a grandchild’s debt. “It’s two people solving very different problems together,” Stevens says.
Paying off your child or grandchild’s student loan is easy. You can repay someone else’s loan without even signing into their online account: all you need is their surname and customer reference number.
However, if you choose to do so, it will be treated as a gift under the IHT rules, says Stevens: even if you’re not giving them money directly, you’re paying off their debt.
Take out life insurance. Financial advisers are reporting increased sales of a type of life insurance that can be used to pay a potential IHT bill and thus avoid the need to sell the family home or other assets to meet the liability.
Kevin Carr, director of Platform Protection Review, says whole life insurance guarantees a payment to your beneficiaries on your death, regardless of when that happens, provided you keep paying your premiums.
There are different types of policy and it can be expensive, but Stevens says it should be something you know you can continue to afford as you age. “If you miss a payment at a later date, you could lose your cover, and if [that happens]you lose all the money you’ve made in payments so far,” he says.
