Upcoming pension changes: What should you be doing now?

From April 2027, unused pension funds and death benefits will become liable to inheritance tax (IHT) – a significant shift that will impact thousands of clients who believed pensions sat safely outside their estate.

For solicitors advising high-net-worth individuals, this is no minor technical change. It cuts to the heart of many clients’ estate planning strategies and could see beneficiaries facing tax rates of over 60% without timely intervention.

Why this matters

Until now, pension assets – including SIPPs and defined benefit lump sums – have been widely used to pass wealth across generations, free of IHT. This favourable treatment ends in April 2027, when these assets will become liable unless left to a spouse or civil partner.

Importantly, the scheme administrator will be responsible for reporting the value of death benefits and settling the IHT bill – but the impact will be felt by clients’ families. This change creates not only a new liability, but also the risk of double taxation, with IHT potentially stacked on top of income tax.

Key steps for solicitors

1. Revisit income strategies and the ‘pensions last’ approach

Clients have traditionally been advised to leave pensions untouched for as long as possible. That may no longer be optimal. Drawing on pensions earlier in retirement – especially while clients are in lower tax bands – could reduce overall tax exposure and prevent pension funds from growing into a future IHT problem.

It’s essential that your clients seek independent financial advice before adjusting their drawdown strategy.

2. Use tax-free cash while it’s still available

The 25% tax-free lump sum is a valuable benefit – but from 2027, if left untouched, it becomes part of the taxable estate. Clients intending to gift to family should consider using this allowance now.

Solicitors can assist with documenting gifts and ensuring they align with wills and other lifetime planning.

3. Strengthen lifetime gifting strategies

Gifts from excess income (immediately IHT-free) and potentially exempt transfers (PETs) should be reviewed now, while clients are healthy and the 7-year clock can start ticking.

These should always be coordinated with the client’s financial planner to assess sustainability and avoid cashflow issues in later life.

4. Consider insurance to cover IHT liabilities

Where gifting isn’t appropriate, a whole-of-life insurance policy held in trust can provide funds to settle the IHT bill, including tax arising from pension assets, without needing to access illiquid assets, such as needing to sell property.

5. Review death benefit nominations and bypass trusts

Expressions of wish forms must be up to date, and solicitors should understand whether pension death benefits will be caught by the new rules – even when payable at trustees’ discretion.

There is still uncertainty around how bypass trusts will be treated post-2027, and specialist advice is key.

6. Promote intergenerational estate reviews

Engaging both the client and their intended beneficiaries in estate planning discussions can improve transparency and alignment.

Solicitors can play a vital role in facilitating these conversations, ensuring Will provisions, trusts, and pension nominations work in harmony and reflect clients’ evolving intentions under the new tax regime.

Don’t wait until 2027

Although the change takes effect in April 2027, the planning should start now. Some of the most effective strategies – such as lifetime gifting or restructuring drawdown – take years to bear fruit.

Solicitors are in a unique position to prompt action. By identifying clients with substantial pensions, complex estates, or existing estate plans built around the old rules, you can add real value.

It is essential that your clients speak to an independent financial adviser to audit their estate and revise their long-term plans in light of these changes.

Strengthen professional collaboration

The upcoming change highlights the importance of joint working between solicitors, financial planners, and accountants.

Coordinated planning ensures clients receive holistic advice – not only minimising tax but also maintaining liquidity, meeting legacy goals, and managing risk across the full financial landscape.

Unresolved questions remain

While the government has confirmed the change, HMRC has yet to publish detailed implementation guidance. Issues around transitional arrangements, the exact treatment of bypass trusts, and how income tax interacts with IHT on pension assets need clarity.

Solicitors should stay in close contact with professional bodies and monitor emerging interpretations to ensure advice remains current.

Final thoughts

For many clients, pensions have long been the tax-efficient “safety net” of the estate. From 2027, that net could turn into a trap. Legal and financial professionals must now work together to ensure clients aren’t caught out – and that their wealth passes to the next generation as intended.