As a financial advisor, accountant, or mortgage adviser, you have an incredibly important role. Not only do you help your clients build their wealth and financial portfolios, but you also protect them too. However, with the proposed major IHT changes coming into force in just two years’ time, estate planning has just become more crucial than ever.
Starting on April 6th, 2027, unused pension pots and death benefits will be included in a person’s estate for inheritance tax (IHT) purposes. This means that beneficiaries could face a 40% tax on inherited pensions, with some also paying income tax on withdrawals. This would lead to an effective tax rate of around 67%!
This is a huge change for financial advisors and the advice they give. But what it also means is that any of your clients who fail to prepare, could see their hard-earned wealth significantly diminished.
In 2023, less than 1% of the UK population had a Lasting Power of Attorney in place according to a study carried out by Age Co (Owned by Age UK) and approximately 31 million were at risk of dying without having written a Will.
And that’s where Secure Inheritance comes in, to help your clients plan and prepare so that nothing they have worked hard for goes to unintended third parties.
The Hidden Risks of Inheritance Tax on Pensions
For years and years, pensions were one of the most tax-efficient ways to pass wealth to loved ones as you well know. But with these new changes, pensions now face the same tax treatment as other assets, unless they take a more proactive step towards estate planning.
So, what does the future look like for your clients:
🔹 From April 2027, unused pension funds and death benefits will be subject to IHT, aligning their treatment with property, investments, and savings.
🔹 Beneficiaries could pay both IHT at 40% and income tax on withdrawals, potentially losing more than two-thirds of their inheritance.
🔹 Your clients need to review their estate plans, ensure they have a Lasting Power of Attorney (LPA) in place, and explore ways to mitigate tax liabilities before these rules take effect.
How This Affects You as a Professional Partner
Your clients trust you to help them protect their financial future. Without proper planning, they, and their families, could face unnecessary tax burdens and legal hurdles.
Essentially, if your client loses mental capacity:
✅ They may lose control over their pension and estate planning decisions
✅ You may be unable to get instructions from them or adjust financial plans
✅ Their loved ones may face costly delays in securing access to their assets
✅ Their mortgage could automatically switch to a higher standard variable rate (SVR), as no one has the legal authority to secure a better deal on their behalf
A Lasting Power of Attorney (LPA) ensures that if a client becomes incapacitated, a trusted individual can manage their financial affairs and avoid costly mortgage rate changes, tax burdens, and administrative delays if they decide to apply to the Court of Protection to gain legal authority.
Why an LPA is More Critical Than Ever
A Lasting Power of Attorney (LPA) ensures that if a client becomes incapacitated, someone they trust can manage their finances, including pension planning, without legal delays.
By recommending an LPA, you’re:
💡 Helping clients protect their pensions and wealth from unnecessary taxation
💡 Ensuring their estate planning continues smoothly
💡 Strengthening your relationship with clients by not just building their wealth, but truly protecting it too
The bottom line is, that estate planning is now more important (and more urgent) than ever before. And 2025 is certainly the year that financial advisers, accountants and mortgage advisers must act to educate their clients on these changes.
While you might already be giving regular reminders about putting a Will in place, you should also be talking to them about LPAs and ensure they have the right legal protections in place.
So, do your clients have an LPA? Are their pensions structured to minimise tax burdens?
Let’s discuss how we can work together to protect their future – as well as your business.
Data and sources:
- https://www.royallondon.com/guides-tools/planning-ahead/estate-planning/changes-to-inheritance-tax-on-pensions-from-2027/
- https://thepeoplespension.co.uk/support-for-pension-scheme-members/know-your-pension/pension-basics/inheritance-tax-iht-changes-on-pensions-from-6-april-2027/
- https://techzone.abrdn.com/public/pensions/Tech-guide-pensions-IHT
- https://techzone.abrdn.com/public/pensions/bringing-pensions-into-iht
- https://brodies.com/insights/wills-and-estate-planning/inheritance-tax-changes-for-individuals-with-pensions/
- https://www.ageco.co.uk/useful-articles/money/wills-and-lpas-why-you-need-them/
