Upcoming Tax Changes: Pensions & IHT
Welcome to the first of our pre-budget updates.
Chancellor Rachel Reeves is set to deliver the Autumn Budget on the 26th November 2025, and as always, there’s plenty of speculation about what changes might be on the horizon. Whilst it’s often difficult to tune out from the noise, making decisions based on rumours rather than facts can prove costly in the long run.
Over the coming weeks, we’ll focus on what we do know and ensure we’re fully prepared to guide you through any changes once the Budget is announced.
WHAT WE KNOW NOW
Announced in the 2024 Autumn Budget, from April 2027, your pension funds will form part of your Estate for inheritance tax. This significant change affects how we plan for your retirement and the legacy you may wish to leave to your family.
WHAT’S CHANGING
For the past decade, pensions have enjoyed a spell as a safe harbour from inheritance tax (IHT). From April 2027, that protection ends. Pensions will once again be included in the estate for IHT purposes, which could have a significant impact for larger estates, particularly as the Residence Nil-Rate Band (RNRB) is tapered away once an estate exceeds £2 million.
Below is a worked example showing the effect of the change based on the following couple’s asset position:
House: £1,500,000
Cash & ISAs: £400,000
Pensions: £800,000
WHY SUCH A DRASTIC INCREASE?
The couple’s estate is £700,000 above the £2 million taper threshold once pensions are included. For every £2 above £2 million, £1 of RNRB is lost. In this case, they lose the full £350,000 RNRB, on top of the extra value being taxed.
The combined effect is significant: the extra £800,000 of pensions doesn’t just face 40% tax, it also wipes out £350,000 of allowances.
The result is an effective tax rate of around 58% on that slice of wealth.
PLANNING AHEAD
Although April 2027 may feel some way off, the impact of these changes could be significant for families with pensions and property. The difference between reviewing your plans now and leaving things unchanged could mean a large share of your pension wealth ends up with HMRC rather than your family.
Looking at how pensions are used in retirement, exploring gifting opportunities, or considering protection strategies could all help mitigate the eventual tax bill. Taking advice early gives you more flexibility, more options, and a far greater chance of ensuring your wealth benefits the people you intend – not the taxman.
If you’d like to understand what the 2027 changes mean for your estate, and what steps could be taken now, please get in touch.
Carrington Wealth Management is a trading style of Carrington Investment Consultants Limited which is authorised and regulated by the Financial Conduct Authority. Registered office: One Chapel Place, London W1G 0BG. Registered in England, number 3193939. This email and any accompanying documents contain confidential information intended for a specific individual which is private and protected by law. If you are not the intended recipient, any disclosure, copying, distribution or other use of this information is strictly prohibited. You are also requested to advise us immediately if you receive information which is not addressed to you. IMPORTANT: The information provided is for general guidance only and should not be relied upon as a substitute for professional advice. Tax legislation and HMRC practice are subject to frequent change, and the impact will vary depending on individual circumstances. Before taking, or refraining from taking, any action based on the information supplied, you should seek advice from a qualified adviser who can consider your particular circumstances. This publication has been prepared for information purposes only by Carrington Investment Consultants Ltd and does not constitute financial advice. The value of investments, and any income generated from them, will be affected by interest rates, exchange rates, general market conditions and other political, social and economic developments, as well as by specific matters relating to the assets in which it invests. Investors should be aware that the value of units may well fall as well as rise, is not guaranteed and that past performance is not a guide to future performance. Different funds carry different levels of risk and investors may not get back the full amount invested. Data Source: Financial Express. Copyright © 2025 Carrington Wealth Management. All rights reserved.
