IHT changes sees HNW estates face 67% tax

Planned changes to the treatment of unused pensions exposed to inheritance tax for the first time could see many high net worth estates facing effective tax rates of up to 67%, according to a new report.

Unused pensions and death benefits will be brought into the inheritance tax net for the first time from April 2027, under government plans.

Under the new rules, uncrystallised and unused drawdown funds could face a 40% IHT charge.

However, Heligan Wealth Management has warned that when combined with recent reductions to Business and Agricultural Property Relief, high net worth estates could be exposed to millions of pounds in additional liabilities.

Analysis from the wealth manager found that a household with a £4 million estate – comprising a £2 million business, £1 million in pension assets, £500,000 in investments and a £500,000 home – could see its inheritance tax liability rise from approximately £200,000 under current rules to £1 million post-2027.

Kieran Duffy, client director at Heligan Wealth Management said the changes represented the most significant shift in retirement and estate planning strategies in decades.

He said: “The implications of the forthcoming 2027 inheritance tax changes extend far beyond pensions alone. The 2027 reforms end the long-standing treatment of pensions as a protected inheritance vehicle. Combined with the recent curbs to Business Property Relief and Agricultural Property Relief, families now face a convergence of tax pressures across all asset classes.

“This means a substantial increase in inheritance tax exposure for many high-net worth families, unless early planning measures are taken.”

The Pension Revolution report from Heligan Wealth Management outlines what steps need to be taken by high net worth individuals ahead of the 2027 inclusion of pensions in inheritance tax estates.