UK Budget: inherited pensions facing inheritance tax

A pensions expert suggests that modifications to the UK's inheritance tax rules will probably lead wealthy individuals to thoroughly reassess their financial plans.

Simon Laight from Pinsent Masons shared his thoughts following UK Chancellor Rachel Reeves's Budget address on Wednesday. He noted that starting from April 6, 2027, the government plans to include unused pension funds and death benefits linked to pensions in a person's estate for inheritance tax calculations.

The government stated that this action will reestablish the idea that pensions should not be used as a means to build up large sums of money for inheritance, similar to the situation before the 2015 pension reforms.

Laight mentioned that pensions might now be seen as a less appealing option for wealthy individuals looking to store their assets.

"This action is aimed at individuals who have been using Self-Invested Personal Pensions (SIPPs) as a tactic for managing inheritance tax," Laight explained. "As a result of this change, we can expect significant shifts in the way wealth management is approached."

"Although current pension savings inside the tax shelter can't be accessed without paying income tax at the highest rate, those with considerable wealth may need to reassess their financial approaches. The appeal of pensions for wealthy individuals has clearly decreased, which will probably lead them to explore other tax-efficient options and planning resources," he stated.

Laight mentioned that this action will probably have a "limited effect on the typical working person."

"According to him, the majority of new pension contributions come from this particular group, which frequently faces challenges in building enough savings for retirement, much less being able to pass on a significant inheritance."