Transcript

Webinar title: One Year to Plan – Pensions, Inheritance Tax, and the 2027 Changes

Date: 22/04/2026

Presenters: Scott Gallacher, Chartered Financial Planner, and Martin Stanley, Chartered Financial Planner, of Rowley Turton

---

Overview

This webinar examined the significant changes coming to pension taxation from April 2027, when pensions will become subject to inheritance tax for the first time in decades. The session was designed for clients and others interested in understanding how these changes may affect their financial planning and what steps they might consider taking during the remaining planning window.

---

Key topics covered

• The fundamental change from April 2027: Pensions will become subject to inheritance tax, ending their long-standing exemption and potentially creating substantial tax bills for many families
• Who will be most affected: People with larger pension funds, those not relying on pensions for income, unmarried couples, and estates approaching key inheritance tax thresholds
• The shifting balance between income tax and inheritance tax: How the new rules change the calculation of whether to draw pensions early or defer withdrawals, particularly for those over 75
• Tax-free cash considerations: Why the timing of taking 25% tax-free cash from pensions has become more complex and may need reviewing before April 2027
• Practical planning strategies: Including using excess income exemptions for gifting, reviewing asset allocation between pensions and ISAs, and considering phased approaches to withdrawals
• The importance of starting planning early: Why decisions made now will be more effective than those made closer to the deadline, particularly given seven-year gifting rules

---

Q&A

Q: Is a single and double life insurance policy a legitimate business expense as portrayed by one particular TV advert, and is it a benefit in kind?

A: Normally if a company pays life insurance premiums, it’s a benefit in kind and taxable. However, there’s an exception for “relevant life policies” where the company can pay premiums without creating a benefit in kind. These are restricted to life assurance only (not critical illness), must be for employees, and are limited by salary multiples. There’s also an age restriction, stopping around age 75, making them more suitable for people in their 50s and 60s.

Q: Can you take your SSAS (Small Self-Administered Scheme) with you if you move abroad to a better tax regime to escape inheritance tax?

A: Yes, it’s possible to transfer UK pensions to overseas jurisdictions for potentially lower tax rates. However, this is extremely complicated. The pension must be of a particular type, HMRC requires the overseas scheme to broadly mirror UK tax regulations, and you must live in the destination country for around five years. This area has been subject to scams and poor advice, so professional guidance is essential.

Q: How are final salary schemes that pass to a spouse after death and are already being accessed impacted by these changes?

A: Final salary pension schemes in payment and their death benefits are not expected to be affected by the new rules, as they provide income rather than a lump sum pot and are already subject to income tax. Similarly, annuity income payments shouldn’t be affected, though there may be questions over value protection benefits. Death in service benefits, initially thought to be included, are now understood to be exempt from the new rules.

Q: Can you draw more from your pension than you need and pass this on tax-efficiently?

A: Yes, if you have sufficient flexibility in your circumstances, you can draw excess pension income and use the “normal expenditure from income” exemption to gift it without the usual seven-year waiting period. This requires the gifts to be regular, from genuine income sources, and not to diminish your standard of living. While you’d pay income tax at 20%, this could be preferable to the beneficiaries facing 40% inheritance tax.

---

Key takeaways

• Review your current position to understand whether the April 2027 changes will affect you – not everyone will be impacted
• Consider whether you have “more than enough” before making any planning decisions – your own financial security must come first
• Evaluate the timing of taking tax-free cash from pensions, particularly if you’re approaching age 75
• Examine whether drawing pension income earlier might be beneficial compared to using ISAs and other savings
• Explore opportunities for regular gifting using excess pension income where appropriate
• Start planning discussions now rather than waiting – the seven-year gifting rules mean early action is more effective
• Avoid rushing into decisions – use the next 12 months wisely for considered planning rather than panic reactions
• Review existing financial plans that may have been based on pensions being inheritance tax-free
• Consider seeking professional advice for complex decisions, particularly around overseas transfers or business-related life insurance

---

Important information

This webinar transcript is provided for information purposes only and does not constitute personal financial advice. The content reflects general information and commentary at the time of the webinar and should not be relied upon as a substitute for professional advice tailored to your individual circumstances.

Rowley Turton is authorised and regulated by the Financial Conduct Authority. If you would like to discuss any of the topics covered in this webinar in relation to your own financial position, please contact us to arrange a consultation.

The value of investments and the income from them can fall as well as rise. You may get back less than you invest. Past performance is not a reliable indicator of future results. Tax treatment depends on individual circumstances and may be subject to change.

---

Full transcript

Scott: Good morning and welcome to our latest webinar. My name is Scott Gallacher and I’m a chartered financial planner with Rowley Turton IFA Limited and I’m being joined by my colleague Martin Stanley, also chartered financial planner. We’re here today to talk about pensions and inheritance tax, which is changing in 2027, April 2027 to be exact, and what these changes may mean to you and why we’ve got a year to plan. I don’t think we will be able to do everything in a year, but I think it’s important that you start to look at this sooner rather than later.

So just very quick bit of housekeeping. Microphones are muted, your cameras are turned off. It’s a webinar, not a video conferencing call. If you want to ask any questions, use the Q&A or even the chat feature. If you struggle on the Q&A to ask questions that you have either before during this presentation and then myself and Martin will review those questions at the end and we will endeavour to answer those for you.

Some quick caveats. This is a webinar. It’s guidance only, shouldn’t be taken as individual advice. So don’t necessarily rush off and do something on the back of this webinar. Come in and speak to us and make sure that what we say is appropriate for you and we do cover later how what might be right for one person could be completely wrong for another person.

Again, just quickly welcome expectations. Those that know us know that we’re not a salesy firm. This is very much an educational exercise for us. There’s no product push, obviously, it’s no obligation. It’s just designed to help you understand what’s happening and why that may matter to you and obviously what you might want to do about that.

So the key points. What is changing from April 2027? Basic inheritance tax on pensions. We’ll discuss that in a minute. What helping your family really means, what it matters. Start with yourself and do you have more than enough at Rowley Turton? We’re very keen that you as a client comes first. Yes, your family is important. Yes, tax planning matters, but you are the absolute key. Some people in their wish to minimise tax and or help family forget about themselves. Our job is very much to ensure that doesn’t happen.

We’ll cover who’s affected. Some people are, some people aren’t. We look at income tax versus inheritance tax. That’s one of the key considerations in this planning exercise. We talk about some of the wider planning considerations. It’s very much a big picture, and we’ll give some examples and obviously we talk about next steps.

So the key question is if pensions become part of your estate, what changes? Essentially what’s happening is it’s going to worsen people’s inheritance tax position. Now some people don’t have an inheritance tax position today and still won’t have an inheritance tax position even if the pensions are included. Generally that’s married couples with children, with an estate less than a million including their pension.

Other people that won’t have an inheritance tax problem today, but from April 2027 when the pensions are going to be included, that will tip them over that threshold and that will create an inheritance tax problem. So obviously that’s going to be quite a big change for those people. Some people already have an inheritance tax problem and adding the pension to that inheritance tax estate is going to make that inheritance tax problem worse. Some clients have got a million pound pension fund, already have an inheritance tax problem, so they could be looking at easily a £400,000 increase to their bill. So it’s a significant issue for a lot of people.

Worth pointing out that if you are cohabiting or single as opposed to married or in a civil partnership, the situation for you is probably worse. Also, if you don’t have children then your inheritance tax allowances are less. So if you’re leaving to nieces and nephews, then your inheritance tax position is worse than somebody with children.

So okay, why does this matter? Well, firstly, pensions have, for as long as I’ve been here, which is almost 30 years, pensions have sat outside your estate. So they’ve always been exempt from inheritance tax apart from one or two rare circumstances. Over the last 10 plus years that’s actually shaped how people plan and structure their assets, especially with professional advice.

That was driven largely by two things. Pensions became a lot more flexible and a lot better to use for not only retirement planning, but also wider financial planning. That coupled with an inheritance tax exemption generally on pension assets, made them become the ultimate inheritance tax planning vehicle for many clients. I do recall, I think Steve Webb, the pension minister at the time, cautioned against financial advisors using these as inheritance tax planning vehicles. But our job is to structure things as tax efficiently for clients as we can. So if you create a vehicle that is incredibly inheritance tax efficient and our clients have inheritance tax problems, we are naturally going to use them.

Finally, frozen allowances means that inheritance tax is effectively increasing and it’s increasing the number of people affected. The basic inheritance tax band of £325,000 per individual has not increased since 2009, so that is 17 years now and counting. There was a change in adding the residential nil rate band and I’ll discuss briefly what that means later. That came in in 2017, but effectively that’s been frozen as well. So that’s almost 10 years. And obviously we’ve got these additional changes April 2027, so it really is piling tax on tax when it comes to inheritance tax in terms of this stealth tax of frozen allowances and then a stealth tax of just including something else in the calculation.

And although April 2027 may sound some way off, in practice, there’s a relatively short window to review your plans. I mention later, it’s all about timing. I’m in my early 50s and hopefully my inheritance tax problem is some years off. If I was 80, then obviously that inheritance tax problem is going to be somewhat closer and in that scenario I’ve lost 30 years to plan. Now, 50 may be too early, 80 may be too late, but the point is it’s more of an ongoing exercise.

So what’s changing? As I mentioned, before April 2027, pensions typically sit outside your estate. And because of that we’ve encouraged clients to pay into pensions and not draw pensions because of that inheritance tax exemption. And what we’ve encouraged them to do is spend down other assets. It’s been something of a perfect solution — your pensions increase because they’re inheritance tax friendly, so we pay more money in and don’t take money out of them, and we reduce your other assets down because they’re generally subject to inheritance tax. And that has achieved huge inheritance tax savings for clients, on top of the other advantages pensions offer.

Now, of course, from April 2027, pensions are most likely to be included in the estate. Technically, the rules haven’t yet been fully written and it could change, but we think that’s highly unlikely. So we’re working on the basis that for most people this will increase their inheritance tax exposure, or push them into inheritance tax if they don’t currently have a liability.

So the best way to look at this is with a simple illustration. This is Janet and John — married, two children. That effectively means they have a million pound allowance, which makes the maths a bit easier. We assume assets are held jointly, apart from pensions which have to be owned individually, and that they leave their wills to each other and then on to the children on second death.

Their estate: a house worth £650,000, £350,000 in investments and savings, and a £500,000 pension — a total estate of about £1.5 million. Being married with children is important because it means they have the residential nil rate band available — £175,000 per individual, or £350,000 as a couple, assuming the house is worth at least that amount. In this case the house is worth £650,000, so that threshold is comfortably met. Their combined taxable estate is £1 million, and today the pension is exempt.

On first death there’s no inheritance tax, partly because the estate may be below the thresholds and partly because transfers between spouses are exempt. On second death today, there’s still no inheritance tax, because the taxable estate — £650,000 house and £350,000 savings — totals £1 million, which sits within the available allowances.

From April 2027, on first death there’s still no inheritance tax because the interspousal exemption still applies. The problem comes on second death. Post April 2027, assuming everything has passed from John to Janet, she has £1.5 million. The amount over £1 million is taxed at 40%, so 40% of £500,000 is £200,000. The tax bill will be prorated across the estate rather than falling solely on the pension — we believe approximately two thirds will fall on the house and savings and one third on the pension, though the final rules are still to be confirmed.

So their inheritance tax bill has gone from nothing today to £200,000 from April 2027, through no change in their circumstances whatsoever. We did a rough calculation in the office and across our clients as a whole, we could be looking at something in the region of £40 million in additional inheritance tax just because of this change. It’s the same people, the same assets — the only real difference is when they die, and whether that’s before or after April 2027.

It’s worth stepping back and asking why pensions have been so valuable — and to be fair, to some extent they still are, just not quite as valuable as before. You get tax relief on contributions, whether you’re paying in yourself or your company contributes on your behalf. There’s tax-efficient growth within the pension, a 25% tax-free cash entitlement at retirement for most people, and the ability to draw income in retirement when your marginal rate is likely to be lower. The only real change from April 2027 is the removal of the inheritance tax exemption. Everything else largely stays the same, so pensions still very much have a place.

Historically, the typical planning approach for someone with an inheritance tax problem has been to fund pensions, defer drawing pensions because they were inheritance tax free, and spend down non-pension assets first. From April 2027, that approach needs to be revisited.

Two key questions follow. First, do you actually have an inheritance tax problem? Many people worry unnecessarily — if your total assets including pensions are below £1 million as a married couple with children, you likely don’t. But circumstances and asset values change over time. Second, even if you do have an inheritance tax problem, do you have more than enough for your own needs? Planning should always start with your own financial security rather than simply being a tax-saving exercise. I’ll now pass over to my colleague Martin.

Martin: Thank you, Scott. Hello, everybody. My name is Martin Stanley. I’m a financial planner here at Rowley Turton, and if you come to the office I’m one of the first people you might see.

We’ve been talking about inheritance tax and pensions, and it’s pretty unwelcome for most of us. But let’s say for the moment that we accept we’re now on a level playing field — that all our assets are going to be subject to inheritance tax. Where do we go from there? What factor do we consider next in order to pay as little tax as possible? And the answer is income tax.

Income tax has always been bound up with pensions. Normally 25% of your pension is tax free, subject to certain limits, but the rest is subject to income tax, which can be as high as 45%. Now that inheritance tax is coming onto pensions, the balance between income tax and inheritance tax has changed — or will change.

Just to recap on how it works today: if someone dies before age 75, inheritance tax still applies as Scott described, but the beneficiaries receive the pension free of income tax. After age 75, income tax applies both when you draw the money yourself and when it passes to a spouse, children or grandchildren. The question then becomes: when is the best time to take that money, and at what income tax rate?

In the past, people tended to defer pension withdrawals and treat the pension as an inheritance tax savings vehicle rather than a true pension. The reasons were tax-free growth within the pension, avoiding income tax by not taking withdrawals, and keeping the pension outside the estate to pass money tax efficiently to the next generation. That was a perfectly logical approach.

But there is now a planning tension. If you leave a pension invested, it can still reduce inheritance tax exposure — but leaving it untouched may mean that your beneficiaries pay more income tax than you would if you took it yourself. On the other hand, drawing the pension brings money back into your estate for inheritance tax purposes, but may reduce the income tax burden on your beneficiaries and enables other planning strategies such as gifting during your lifetime — often at a point when the money is more impactful for your children.

From April 2027, the advantages of leaving pensions untouched will reduce, and income tax considerations will come more to the fore. In some cases it may be reasonable to consider drawing pensions earlier. But I want to be clear — this only applies where there is already an inheritance tax issue, and the key question is always whether beneficiaries might face a higher income tax charge. Everything I’m going to say here really depends on individual circumstances. There is no one-size-fits-all solution.

Back to Janet and John. We know that on second death they face a £200,000 inheritance tax bill. What might they do differently? The most important starting point — as we always emphasise at Rowley Turton — is to make sure that any reduction in assets doesn’t leave you short. Plan carefully before acting.

If you have established that you can afford to remove some money from your estate, how do you do it? One option is drawing your pension earlier than you otherwise might. The key prompt for doing so would be if you have a gap in other income — for example, before your state pension or final salary pension comes into payment — meaning you could draw pension income at a lower tax rate. You might also consider that your spouse or children are higher rate taxpayers, making it better for you to take the money now. Some people also take the view that tax rates may rise — and given that thresholds are frozen until at least 2031, that is effectively already happening in real terms.

The opposite argument — choosing your ISA rather than your pension — applies if drawing the pension now would mean paying more income tax than if it were taken later, or if a lower-rate-taxpaying spouse could take it in due course.

It’s also worth remembering the annual gifting allowances. Each person has a £3,000 per year personal gifting allowance — £6,000 a year for a couple. And where income is genuinely surplus to your requirements, particularly pension income, it may be possible to gift it away without the usual seven-year waiting period. That’s something we’d be very happy to talk through with you.

In summary — whether it’s better to use your pension now or later, and whether to use ISAs or savings — there are real pros and cons to consider in relation to income tax. Please don’t try to work this out on your own. Let’s do some planning together.

In terms of how to achieve good outcomes: spend more in retirement or support your family earlier where appropriate; decide whether withdrawals should come from ISAs, savings or pensions; draw on pension assets gradually rather than in one-off lump sums; and structure assets over time with a phased approach. The key message is that good outcomes come from starting early, reviewing regularly, and balancing tax efficiency with flexibility. Avoid reacting late or looking for a single solution that solves everything at once — it’s almost always a series of steps over time. I’ll hand back to Scott.

Scott: Thank you, Martin. So, tax-free cash — this is one of the big areas where the planning approach is changing.

Previously, if we had a client with, say, a £1 million pension, we would have said fairly strongly that they should not take the tax-free cash, because the pension was inheritance tax exempt. The idea was to preserve the entire pension fund — including the tax-free cash element — inside the pension, where it sat outside the estate. If the client died before age 75, the full fund could pass to beneficiaries entirely free of both income tax and inheritance tax. Even at age 75, there was still a case for not taking the tax-free cash, because drawing £250,000 out of a £1 million pension would bring that money into the estate, potentially creating a £100,000 inheritance tax bill.

From April 2027, pension funds are going to be subject to inheritance tax anyway. That removes part of the tension. If I leave a £250,000 tax-free cash entitlement inside my pension and die after April 2027, my beneficiaries will face both income tax and inheritance tax on it — which is clearly worse. So for those approaching age 75, there is now a real case for reviewing their position over the next year. Historically, deferring tax-free cash supported inheritance tax planning, but from April 2027 that benefit reduces or may even become counterproductive.

There is, however, a risk in acting too quickly. If you are 74 and have a £1 million pension and £1 million of other assets, the ideal moment to take that tax-free cash may be just before April 2027 — but if you take it today and something unexpected happens in the next six months, you may have created a £100,000 inheritance tax bill unnecessarily. If you wait until after April 2027 and something happens before you’ve acted, you may face both inheritance tax and income tax. There isn’t always a right answer, but there are certainly wrong ones. The key is considered, timely planning rather than rushing.

More broadly, tax changes can prompt decisions that are made too hastily. The plan should always reflect your own circumstances. I often receive a phone call where someone says a friend told them to do something and they think their situation is the same — but when you look at it properly, the circumstances are often quite different. People may have similar incomes and assets on the surface but very different family situations, spending needs and long-term objectives.

Flexibility remains important. The government does change tax rules regularly, so planning should always build in a degree of safety margin to allow for adaptation. Timing matters — we have around a year before these changes come in, and it’s not an unlimited window. The seven-year gifting rule means that starting earlier gives you more time for gifts to become fully exempt. Some planning, such as business relief, carries a two-year holding window, which can help even for those in their 80s, though options do become more restricted with age. Some pensions are straightforward to access; others can take many months if there are special benefits or complications involved. Phased decisions over time are often more appropriate than one large action.

So what does good financial planning look like? At Rowley Turton, it starts with your needs — you are the most important person in this. We build in a margin for uncertainty, because nobody knows exactly what the rules or markets will look like in five or ten years. We consider the whole family — including whether children or grandchildren have their own inheritance tax exposure, how stable their circumstances are, and whether it might be appropriate to skip a generation or use a trust structure to keep assets out of the estate for longer. And we review planning on an ongoing basis, which we consider absolutely key.

In terms of next steps: review your current position and consider whether these changes affect you. Identify the areas that need attention, and then use the next 12 months wisely rather than rushing into decisions. Rowley Turton has an inheritance tax calculator on the website — rowleyturton.com — which allows you to input your assets and pension values and see the potential inheritance tax liability difference between now and after April 2027. There is also a pension inheritance tax scorecard, designed to help you understand your current position. In terms of how we can help: we help you understand the changes and how they affect you personally, review existing plans, consider wider planning considerations, and support long-term decision making. There’s also a free copy of our book, Enough, which sets out our broader financial planning approach. If you’d like a copy — for yourself or for someone you think might benefit — please drop Martin an email with a postal address and we’ll get one in the post to you.

Martin: Thank you, Scott. Now we’ll move on to questions. We had a couple sent in ahead of the webinar, which we’re very grateful for.

Q: Is a single or double life insurance policy a legitimate business expense as portrayed in one particular TV advert, and is it a benefit in kind?

Normally, if a company pays life insurance premiums on behalf of an employee or director, it is treated as a benefit in kind and is taxable. However, there is an exception — a “relevant life policy” — which allows the company to pay the premiums without it being a benefit in kind, making it tax efficient. There are some restrictions: it can only cover life assurance, not critical illness; it must be for an employee of the company; and the sum assured is typically limited to a multiple of salary, which may restrict cover for those who take a low income from their own company. There is also an age restriction, with cover generally stopping around age 75, making it more suitable for those in their 50s and 60s. It also carries an inbuilt trust arrangement, which adds to its efficiency. It is a useful planning tool, but not necessarily a complete solution on its own.

Q: Can you transfer your SSAS (Small Self-Administered Scheme) overseas to benefit from a better tax regime and escape inheritance tax?

It is possible to transfer UK pensions to overseas jurisdictions, and in some circumstances a lower tax regime may apply. However, this is an extremely complicated area. The pension must be of a particular type, HMRC requires the overseas scheme to broadly mirror UK tax regulations, and you must live in the destination country — typically for around five years — before the full tax benefits apply. It is also an area that has unfortunately been subject to scams and poor advice, so professional guidance is absolutely essential if this is something you are considering.

Q: How are final salary pensions that are already in payment, and which pass to a spouse on death, affected by these changes?

Our understanding is that final salary pension schemes in payment and their associated death benefits will not be affected, as they provide income rather than a lump sum pot and are already subject to income tax. Similarly, annuity income payments should not be affected, though there may be a question mark over value protection benefits — where a lump sum equivalent to the remaining pot passes to a spouse — and this may warrant further clarification. Death in service benefits, which were initially thought to be included in the new rules, are now understood to be exempt, which is a welcome development, particularly for younger clients still in employment. Where the changes do have an impact is for those who transferred out of a final salary scheme into a defined contribution arrangement such as a SIPP. Those transferred funds will now be subject to inheritance tax from April 2027, which does worsen the position for those individuals, though many will still have benefited overall from the flexibility and other advantages the transfer provided.

Q: Can you draw more from your pension than you need and pass it on tax-efficiently?

Yes — if you have sufficient flexibility in your circumstances, you can draw excess pension income and use what’s known as the “normal expenditure from income” exemption to gift it to your beneficiaries without the usual seven-year waiting period. The key conditions are that the gifts must be regular, come from a genuine income source such as a pension, and must not diminish your own standard of living. While you would pay income tax on the withdrawal — typically at 20% — this could be significantly more favourable than your beneficiaries facing 40% inheritance tax on the same funds.

This is particularly relevant for clients in their 70s and 80s whose spending has naturally reduced and who have a pension they no longer need in full for day-to-day living. For example, if someone has a state pension of £12,000 a year and can earn up to £50,000 a year before paying higher rate tax, they might choose to draw around £38,000 from their pension — only part of which they need for spending — and gift the surplus. Paying 20% income tax on that excess is considerably better than the beneficiaries paying 40% inheritance tax. Done consistently over several years, this can make a meaningful difference — potentially saving tens of thousands of pounds in inheritance tax over time. It is something we would be very happy to explore with you if it may be relevant to your situation.

Martin: Thank you very much to everyone who attended today. After this webinar we will email each of you a recording of the session and a transcript. If you would like a copy of Scott’s book, Enough, please send your postal address to me at martin@rowleyturton.com and we’ll pop one in the post. If you have any further questions that we haven’t covered today, please don’t hesitate to get in touch. We hope to see you again at our next webinar in a few months’ time. Thank you very much.

Scott: Thank you all. Goodbye for now.