PCD Leeds Conference | Panel 5: UK & International Pensions Update | 3 March 2026
If the morning sessions had been dominated by the fallout from business property and agricultural relief reforms, the afternoon's pensions session brought a further front into view. Debbie Mahanta and Joshua Mortimore of Bowmore Financial Planning had that morning attended a specialist STEP seminar on the pension IHT changes — and their account of what is coming from April 2027, and how clients are already responding, was among the most practically useful of the day.
What Is Changing and Why It Matters
The headline is straightforward enough: from 6 April 2027, pension assets will be included in the calculation of an individual's estate for inheritance tax purposes. For decades, the pension fund has functioned as perhaps the most effective estate planning vehicle available to UK taxpayers — a pot of wealth that could be passed on to subsequent generations entirely free of IHT, sitting outside the estate and accumulating tax-efficiently. That treatment ends in just over a year.
Mahanta was careful to contextualise the change beyond the headline rate. The interaction with other allowances is where the real complexity lies. Many clients have structured their affairs on the basis of keeping their estate below the £2 million threshold at which the residence nil rate band begins to taper away. For a couple, losing the RNRB entirely because a previously out-of-scope pension has pushed the combined estate above that threshold can represent a significant additional tax cost — entirely separate from the IHT charged on the pension itself. "Overnight," she said, "a lot of people in that bracket will lose their residence nil rate band and that between a couple does make quite a bit of difference."
The post-age-75 double taxation scenario drew particular attention. If a pension holder dies after age 75, their beneficiaries pay income tax on the proceeds at their marginal rate. From April 2027, 40% IHT will also apply to the pension before it reaches them. When the residence nil rate band is also lost, the effective combined tax rate can exceed 68% in some scenarios — making the pension, once the most tax-efficient way to pass on wealth, potentially the most tax-inefficient asset in an estate. "Clients are naturally very interested in how to plan for that eventuality," Mortimore said, with studied understatement.
What Clients Are Doing Now
The session moved quickly into practical territory, with Mahanta and Mortimore drawing on live client cases. For clients who have not yet crystallised their pension at all, the immediate opportunity is to take the tax-free cash — 25% of the fund, up to the current lump sum allowance of just over £1 million — and direct gift it or place it into trust. That is, as Mortimore put it, "an easy win." The more complex question is what to do with the balance.
A less aggressive but highly practical strategy is to switch on pension income, use the gifts from surplus income exemption to pass the drawn income directly to the next generation free of IHT, and ensure meticulous record-keeping to demonstrate regularity of pattern and genuinely surplus income. Mortimore noted there is no upper limit on this exemption. The key risk is timing: drawing pension income now accelerates income tax, whereas previously the advice was always to let the pension accumulate. "You're getting to the same destination," Mahanta acknowledged, "but you're paying the tax earlier."
Illiquid Assets, Beneficiary Nominations, and Practical Administration
The session dedicated considerable time to a risk that has received little public attention: pension funds holding illiquid assets — commercial property, unlisted shares, assets held in Small Self-Administered Schemes. From April 2027, inheritance tax on these assets will be payable within six months of death, calculated on the value at the date of death. For a SSAS where the principal asset is, say, an office building worth several million pounds, finding and paying that IHT liability without forcing a distressed sale of the property in a compressed timeframe is a real and potentially costly challenge. Mahanta noted that interest on unpaid IHT will accrue at 4% above base rate, charged monthly — a powerful incentive for early liquidity planning.
Two practical points received particular emphasis as the session closed. First, beneficiary nomination forms on pensions need urgent review. The longstanding advice was to nominate the next generation rather than a spouse, since passing to a spouse simply deferred the IHT. From April 2027, it may make far more sense to nominate a spouse first in order to take full advantage of spousal exemptions — entirely reversing previous guidance. Second, will planning must now explicitly factor in pension assets. Many clients' wills were drafted when the pension sat entirely outside the estate; from 2027, failing to account for pension values in the overall estate plan will expose clients to significant and avoidable tax. "Very much proactively contact your will clients," Mahanta urged, "to understand the value of pension assets and what this means for overall IHT planning." For every adviser in the room, the pensions conversation has moved from peripheral to central.
Bowmore Financial Planning is authorised and regulated by the Financial Conduct Authority (FRN:115180). This article summarises comments shared during a technical panel session and does not constitute financial or tax advice. For general information about Bowmore Financial Planning, visit Homepage | Bowmore Financial Planning
