Getting ready for the 2027 pension inheritance tax changes with Lloyds Wealth

The change could have important implications for some families. But because individual circumstances vary, there is no single action that will be right for everyone.

One reason for this is that your pension is only part of your wider financial picture. The right approach will depend on factors such as your pension savings, other assets, retirement income needs, who you want to leave your wealth to and the plans you already have in place.

The new rules will make it increasingly important to consider these together, particularly how you balance enjoying a comfortable retirement with passing wealth on to your loved ones.

Remember that tax treatment depends on the individual circumstances of each client and may be subject to change in the future.

Two people with similar-sized pension pots could be affected very differently by these changes.

One person may be heavily reliant on their pension to provide a stable income throughout retirement. Another may have significant savings, investment income or rental income and may not need to use much of their pension savings as a result.

Their beneficiaries may also be different. Transfers to a spouse or civil partner can generally qualify for an inheritance tax exemption, while benefits passed on to children or other beneficiaries may be treated differently.

Your age, expenditure, family circumstances and wider estate can all affect the choices available to you. This is why reacting to the rule change in isolation could lead to decisions that do not suit your long-term financial goals.

From April 2027, pensions will need to be considered more closely with the rest of your estate when planning how wealth may eventually be passed on.

This is where it becomes particularly important to understand where your wealth is held. Alongside your pension, this might include your home, cash savings, ISAs, high-value personal possessions and other investments.

It is also worth thinking about the role each asset could play. Some may be intended primarily to provide an income, while others could be earmarked for future spending, helping family members or passing on as an inheritance.

Looking at these assets together can give you a better understanding of whether your current plans are still likely to meet your goals after the rules change.

It may be tempting to focus simply on reducing a potential future IHT bill. However, tax is only one consideration.

A key priority is ensuring you have enough income to support you throughout retirement and help you absorb any unexpected costs.

If you simply withdraw money from a pension or give assets away, this may not necessarily leave you or your family better off in the long term. Pension withdrawals may also be subject to income tax, while gifts can affect your own financial stability and have their own inheritance tax implications.

The key point is to focus on your own needs while passing on your wealth as efficiently as possible.

Our advisers can help bring the different parts of your finances together and explore how the new rules could affect your individual circumstances.

This could include modelling different scenarios to show how your retirement income and estate might change depending on how and when you use different assets.

Discover more about cash flow modelling

Comparing possible outcomes can make the trade-offs easier to understand before you make a decision.

Where appropriate, our advisers can also help you consider whether gifting could form part of your long-term plans, consider existing trust arrangements, and identify where specialist legal or tax advice may be needed.

The new rules will also make good record-keeping increasingly important. HMRC says personal representatives should take reasonable steps to identify relevant pension schemes when administering an estate. Keeping clear, up-to-date information about your pension arrangements and any expression of wishes can therefore make things easier for your family in the future.

The 2027 changes do not mean everyone needs to overhaul their financial plans. In some cases, a simple review may confirm that your existing approach is still an appropriate one.

But if your plans were created under the current pension inheritance tax rules, it is a sensible time to check that they still reflect what you want to achieve.

Thinking about your pension as part of your wider retirement and estate plan can help you make more informed choices that support your financial stability while helping you pass on your wealth as you intend.

The good news is that there is still time to prepare.

This article is for information purposes only. It is not intended as investment advice.

Fees, charges and eligibility criteria apply.

The retirement benefits you receive from your pension plan depend on a number of factors including the value of your plan when you decide to take your benefits which isn't guaranteed and can do down as well as up. The benefits of your plan could fall below the amount(s) paid in.

Lloyds Wealth does not provide personal tax advisory and tax compliance, estate planning and administration, trust creation and management or will writing, however we can introduce you to a relevant specialist.

Lloyds Wealth might receive a referral fee from some of the partners we introduce to you.

Any views expressed are our in-house views as at the time of publishing.
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