Pensioners rewrite wills to avoid labour’s IHT changes targeting pensions

Pensioners across the UK are updating their wills in an effort to navigate Labour’s upcoming inheritance tax expansion, which will bring pensions under the 40% tax rate, as reported by The Telegraph.

Law firms report an uptick in inquiries since last week’s Budget, where Shadow Chancellor Rachel Reeves announced that pensions would be subject to inheritance tax beginning in 2027.

Despite the rule changes not taking effect until April 2027, many wealthy savers are already making plans to shield their families from potentially substantial tax obligations. James Ward from Kingsley Napley law firm noted that clients are particularly focused on reworking their “expression of wish” forms. Since pensions are not included in wills, beneficiaries must be named separately, usually via an “expression of wish” or “nomination of beneficiaries” form.

Lawyer Russell Kaminski of JMW also confirmed a rise in clients interested in redrafting their wills, with many seeking flexible structures such as trusts that could adjust to future tax changes. The recent Budget has forced many retirees to reconsider retirement plans, as many had previously been advised to keep pension funds intact for their children to inherit without tax penalties.

The Treasury estimates that from 2027-28, an additional 38,500 estates will incur higher tax bills due to the inclusion of pensions, with another 10,500 estates impacted that would otherwise have been tax-exempt. Some pensioners are now expected to begin drawing on their pensions to reduce the taxable portion of their estate.

Kaminski suggested that clients are increasingly likely to access pension funds during their lifetimes instead of leaving them untouched.

Kieran Bowe of Russell-Cooke highlighted the value of spousal exemptions. He advised that pension holders could nominate their spouse as the beneficiary, allowing a surviving spouse to later gift the capital sum. If the surviving spouse lives another seven years, the gift would be exempt from inheritance tax.