Claire Trott, Technical Connection

The landscape of pension and inheritance tax planning is shifting rapidly. As legislation continues to evolve, it’s becoming increasingly important for individuals to reassess their retirement strategies and consider proactive steps to protect their estates.

We are still dealing with the ever-changing legislation and proposals with regards to the inclusion of unused pension funds within inheritance tax calculations. We have seen a number of changes and announcements this tax year, but it remains that many who didn’t have an IHT issue before will have one come April 2027.

Those that had planned to pass on their pension IHT free to their beneficiaries may want to consider starting to act now to mitigate any IHT in the future — even though it isn’t currently in legislation.

One of the easiest ways to do this, and one that won’t immediately cause an IHT problem, is to make gifts using pensions income.

Using the gifts out of normal expenditure rules, taking pensions income on a regular basis and gifting it regularly can avoid any inheritance tax charges, if done correctly. These gifts need to be regular, sustainable and not reduce the standard of living of the person making the gift.

Documentation is key to show that the income really is an excess and that the executor of the estate can prove this on death. The best way to record this is on the IHT403 form annually and document the advice clearly.

It should be noted that you can’t draw down your pension, gifting all the income whilst living off your capital. This needs to truly be excess income and so care should be taken to consider all assets the client is encashing and how they are classed. One example is that tax deferred withdrawals from an investment bond or international investment bond is a return of capital and as such can’t be used to support the client for this calculation.

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This article is intended for regulated financial advisers and investment professionals only.

The statements and opinions expressed in this article are those of the author and don’t necessarily reflect those of Wealthtime or any of its employees. The company does not take any responsibility for the views of the author.

The above is based on understanding of current law and HMRC practice, and Government proposals regarding future law and HMRC practice, as at 23 February 2026, and are presented for general consideration only and no action must be taken or refrained from based on the content of this article alone. Each case depends on its own facts and advice is essential. Accordingly, neither Wealthtime nor Technical Connection, nor any of their officers or employees can accept any responsibility for any loss occasioned as a result of any such action or inaction.

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