The inclusion of unused pension assets in IHT calculations will have a significant impact on the later life lending market as older home owners could be advised to release housing wealth as a core tax planning tool to reduce estate size or fund retirement more efficiently.
With over £2 trillion in property wealth held by over-55s, CEO of Key Advice & Air Will Hale says advisers now have an ‘obligation to consider later life lending options as a core element of clients’ retirement and estate planning strategies.’
“Efficient tax planning is a foundation and driving principle of long-term financial planning. Whilst the government made its intentions around IHT for pension assets very clear last year, advisers and customers can be forgiven for not fully embracing the implications of the new regime as the technical detail around the plans remained unclear.”
Starting 6 April 2027, most unused pension funds and death benefits will be included in the value of an individual’s estate for IHT purposes. The government estimates that out of approximately 213,000 estates with inheritable pension wealth in 2027–28, about 10,500 estates will become liable for IHT where they previously were not, and around 38,500 estates will pay more IHT than before.
“What is evident is that these changes are another reason for property wealth to be considered as a core part of retirement and legacy planning. Later life lending products can help fund retirement and be used as an IHT mitigation tool, therefore meaning that they are an important consideration for all advisers involved in wealth accumulation and decumulation.”
Currently, defined contribution pensions can be passed on tax-free (if the saver dies before age 75), and IHT-free in most cases. Including pensions in IHT will erode their advantage as a wealth transfer tool, with the option to convert pension savings to provide a guaranteed income in retirement, rather than preserving these assets for inheritance, one to consider says Hale. Housing wealth can then be used to support capital needs in later life and for intergenerational wealth transfer through gifting.
Modern equity release products may offer a more flexible or tax-efficient way to support family or fund a better lifestyle in retirement. Gifting from unlocked housing wealth would reduce a client’s IHT liability if the donor survives 7 years (taper relief).
“Later Life Lending may lie outside of the core skillset of many wealth advisers and trusted referral partnerships with later life lending specialists is likely the strongest route for advisers to deliver great client outcomes and to fulfil their Consumer Duty obligations. Similarly, those mortgage advisers specialising in later life lending should also ensure that they have relationships with tax experts and wealth managers in order that an holistic approach can be followed when customer circumstances require.”
