Responding to the shifting IHT landscape
This year promises to be a record reeling year for Inheritance Tax (IHT) receipts are on course for a record breaking year, hit £3.7bn in the first five months of the 2025/26 tax year1.
Plans are in train to increase receipts further, with a significant shift due in April 2027. While IHT thresholds, the amount that can be passed on after death before IHT is due, will remain at £325,000 until 2030.
Historically pensions have sat apart from this, prompting a rise in their popularity as a tax efficient intergenerational wealth planning tool. However, from 6 April 2027 this will change, and most unused defined contribution pension funds and death benefits will be included within the value of a person’s estate for IHT purposes. It is estimated that the change will raise a total £1.5bn by 20302.
This is a huge shift not just for those that might be nearing the end of their lives, but for those earlier in their financial planning journey who are looking to build and protect emerging wealth.
The investor impact
According to the Scottish Widows Investor Confidence Barometer3, just 31% of investors have been untouched by the IHT/ pension changes, saying that the government’s plans have had no impact on their financial planning. This falls to one in five (20%) among those that have a financial adviser.
The survey also found that 30% of investors say they will maximise the gifting allowance as part of their mitigation strategy, while just over a quarter (27%) say they have considered life insurance to reduce IHT liability.
Notably, this route is much more popular among younger investors. Almost half (48%) of investors aged 25-34 are looking at this option and 34% of those 35-44. This is the case of just 6% of those 55+, the majority of whom (51%) say it’s had no impact. Just under a quarter (22%) say they will be drawing their pension earlier.
The Adviser experience
From the adviser perspective, the changes have further complicated an already complex landscape, prompting a detailed reassessment of their clients wealth planning.
Only around half of advisers (52%) feel they have sufficient time and information to prepare clients for potential changes to IHT, including the treatment of pensions. Furthermore, a significant majority of advisers (74%) identified "understanding complex tax rules (e.g. IHT)" as a major challenge for their clients. This was followed by fear of running out of money themselves (62%), knowing when to start gifting wealth (55%), and family disagreements or fairness concerns (15%).
Importantly, advisers are making changes to how they advise their clients. More than half (55%) have recommended more lifetime gifting strategies, while a similar percentage (51%) are reviewing retirement income and spending assumptions. The findings also reveal that 49% are encouraging earlier drawdown of pension assets, 48% are initiating earlier intergenerational wealth conversations between clients and families, and 37% say they are promoting the increasing use of trusts or onshore bonds to support intergenerational planning.
Necessary considerations
It’s important to remember that just because a plan has been made, it can’t be taken for granted that clients’ ambitions or expectations have remained the same. Nor is it certain that the steps to their desired financial future should remain unchanged.
As always, making the right plan means having the right conversations, and having them regularly. So regular contact and frank conversations are imperative. Cash-flow modelling can also play an integral part here, ensuring that a true holistic financial picture is established both for now, but for a range of future scenarios too. Only then can advisers properly understand family dynamics, anticipate life milestones, and even help support charitable passions in the most economical way.
The range of financial planning options is more complex than ever before. But the additional challenge is the evolving financial playbook, which is under almost constant revision and scrutiny. Not only do advisers have to work hard to stay ahead of the curve, but they are in a constant state of mitigation, for the known and unknown, trying to mitigate and preempt changes they may or may not come down the line.
Client frustration is also a factor. Those that have trusted experts and ‘bared all’ to their adviser have done so with the expectation that their hard earned wealth will be properly protected and the correct decisions made to make that happen.Should rules change and clients feel exposed, advisers are in the firing line - regardless of whether they were right at the time. It is therefore incredibly important that clients’ expectations are managed from the start, and they are in the loop when it comes to the variables impacting the planning.
It can seem like an almost impossible task.
But those that are able to continue to build relationships with clients and keep them engaged in the process will reap the rewards.
Sources:
1HMRC, HMRC tax receipts and National Insurance contributions for the UK (monthly bulletin) Sept 2025
2City AM, ‘Cash cow’ inheritance tax receipts edge higher as further changes loom Sept 2025
3Scottish Widows, Investment Confidence Barometer, 2025