IHT on Pensions Update

Inheritance tax has for many years been capturing more and more families, who perhaps would never have been considered as candidates for a tax historically associated with the very wealthy. The Government’s announcement in 2024 that pension funds will also be included in the IHT calculations from April 2027, will entrap even more of us and the fact is, our role as financial planners is requiring us to consider IHT planning for a higher proportion of our clients.

Of course, we also see a wide range of opinions on this tax. Some clients are somewhat ambivalent, commenting that the family will still be handed a healthy inheritance, others will do all they can to avoid any potential inheritance tax, but the reality is most clients sit somewhere between these two reactions.

The inclusion of pensions funds is a big deal. We have a large chunk of clients who had strategically left their pensions untouched, planning to leave the value to their children in a tax efficient manner, these clients now need to rethink their plans. Many of them are pretty fed up with these developments, but in many ways, it’s not that surprising that the rules have changed.

The impact of providing tax relief on pension contributions costs the Government around £70 billion a year, but this tax break was never intended to create a nifty inheritance tax mitigation vehicle for the wealthy, it is in place to help us accumulate funds to prepare for a comfortable retirement and not be over reliant on state benefits.

Some clients are asking, “what should we do now?” The answer could be to spend the pension and enjoy the proceeds or maybe give the income away, which brings in further tax saving opportunities. For those particularly concerned with the IHT position, they might consider taking out a life assurance policy to cover all or some of the liability and fund the premiums from pension withdrawals. This can provide an attractive solution to those who are not so keen to make significant lifetime gifts.

Reviewing the death benefit nomination of a beneficiary form is also an opportunity to rethink the potential direction of benefits and this process might also trigger a review of Wills and Expression of Wish considerations.

It’s not unusual for tax rules to change and it’s not always to our liking, but a structured financial plan, should be capable of dealing with a few bumps in the road, and if the recommendation from us is to spend your pension, then perhaps that’s not the worst financial advice you’ll ever receive! Tax treatment depends on individual circumstances and may change. Taking money from your pension may reduce your retirement income.

The information supplied is based upon our understanding of current UK law and HM Revenue and Customs (HMRC) practice. Tax law and HMRC practice may change from time to time. The value of any tax relief will depend on the individual circumstances of the investor. This is our understanding of the proposals so far and these may be liable to change as further regulations are introduced. You should be aware that the value of an investment can fall as well as rise and that investors may not get back the amount they invested. The information contained within this communication does not constitute financial advice and is provided for general information purposes only. No warranty, whether express or implied is given in relation to such information. FMIFA or any of its associated representatives shall not be liable for any technical, editorial, typographical or other errors or omissions within the content of this communication. You should be aware that the value of an investment can fall as well as rise and that investors may not get back the amount they invested. The Financial Conduct Authority does not regulate tax planning or trusts, nor Wills and Probates.

By Phil Harper | June 2026

Tax treatment depends on individual circumstances and may change. Taking money from your pension may reduce your retirement income.

Onshore or Offshore Bonds

We often refer to both when investing on behalf of clients, but which is best?
There is no straight answer to this, as each or both might be appropriate depending on individual circumstances. But the main differences are as follows:

Onshore Bonds are subject to UK corporation tax within the fund. However, when you
encash, you’re treated as having paid basic-rate tax already, so additional tax only applies if
you’re a higher or additional-rate taxpayer. These are covered by the UK Financial Services
Compensation Scheme (FSCS).

Offshore Bonds Funds grow gross of tax (no UK corporation tax within the fund), which may result in different growth outcomes compared to Onshore Bonds. When you withdraw, gains are taxed as savings income at your marginal rate (20%, 40%, or 45%). Please note from a consumer protection perspective that offshore bonds are not generally covered by FSCS.

Both types of Investment Bond allow tax deferred growth, with up to 5% per annum of the original investment amount being withdrawn without immediate tax liability, and gains are only taxed when a
chargeable event occurs (e.g. surrender or death). 

Also, both types of Investment Bond have a valuable feature which allows the investor to assign some or all of the arrangement to, for example, another member of the family. This can be really helpful in reducing the tax payable on growth when encashing.

By Andy Robinson | June 2026

The information contained within this communication does not constitute financial advice and is provided for general information purposes only. No warranty, whether express or implied is given in relation to such information. FMIFA or any of its associated representatives shall not be liable for any technical, editorial, typographical or other errors or omissions within the content of this communication. You should be aware that the value of an investment can fall as well as rise and that investors may not get back the amount they invested. The value of any tax relief will depend on the individual circumstances of the investor. The Financial Conduct Authority does not regulate tax advice. Rules and regulations for the protection of investors under the UK Financial Services and Markets Act 2000 may not apply to offices located outside of the UK and investors may not be able to benefit from the provisions of the UK Financial Services Compensation Scheme.

Pensions and Inheritance Tax Update

What are we asking clients to consider?

1.Tax-free lump sums
If you have any available tax-free lump sum, you might consider withdrawing some or all of it and reinvesting into a qualifying investment that becomes IHT-exempt after two years. This choice will depend on your financial situation and risk appetite, so it’s important to get the right advice.

2.Gifting surplus pension income
If your pension withdrawals exceed your income needs, consider drawing taxable income and giving it to children, grandchildren or other family members. The seven-year clock is ignored if this gift doesn’t financially disturb your lifestyle, is a regular payment and leaves your estate immediately.

3.Life Assurance planning
If you’re in good health, drawing income from your pension to fund the premiums towards a Life Assurance policy, could be a tax-efficient way to provide your beneficiaries with a lump sum to help cover any IHT liability.

4.Spending your wealth
A popular and often overlooked strategy is simply to enjoy your wealth by spending it! We often use the phrase ‘don’t let the tax tail wag the dog’, which suggests if drawing pension income means paying higher-rate tax, it may still be worthwhile if it enhances your lifestyle and reduces your estate. Our Cashflow Planning tool can review your data and deliver a snapshot of the future to help you shape your spending plans.

5.Planning before your 75th birthday
If you are over 75, your beneficiaries will still need to pay income tax at their marginal rate on pension withdrawals made after your death. Withdrawing tax-free lump sums before you reach your 75th birthday has become a more relevant part of effective tax planning.

6.Residential Nil Rate Band (RNRB)
The RNRB is £175,000 per person but it tapers by £1 for every £2 that the estate value exceeds £2 million. Including pension funds could push some estates above £2 million, reducing or eliminating their RNRB entitlement.

By Phil Harper |  June 2026

How to recognise a financial scam

UK fraud prevention groups are warning individuals to be extra vigilant as these scams increase in sophistication, we are all vulnerable.

The Financial Conduct Authority (FCA) reminds consumers that like anything valuable, your pension or investments can become the target for illegal activities, scams, or inappropriate investments. Scams can take many forms and often appear to be a legitimate investment opportunity. Use the FCA’s Scam Smart to check investments and pensions.

We have pulled together a list of tips on how best to recognise and avoid a financial scam.

• Stop and check the domain name of the sender’s email address. Fraudsters draw you in with an email that looks remarkably legitimate, so a close match but with something slightly off. Think @amaz0n.co.uk. If you are still unsure, it is good practice to go to the website directly rather than click on any links in the email.
• Do not click on links or open emails from senders you do not know.
• Be wary of special offers and deals that sound too good to be true. Avoid the pressure to act quickly.
• Avoid shopping on public Wi-Fi networks such as the railway station. They rarely have the safety protocols such as passwords in place, so easier for hackers to piggyback and steal unsecured banking details without you knowing.
• Be careful of fake websites designed to look identical to an official one. Every website should have a valid security certificate and you can tell by the little padlock icon next to the URL. If the website doesn’t have one, don’t give any personal details.
• Apple Pay and Google Pay are good payment options as they protect your bank details.
• Keep an eye on your bank account and if you see anything unusual get in touch with them.
• If you think any of your online accounts have been compromised, change the password, and try to have a unique password for each retailer.
• Another classic is a text message suggesting you have a parcel waiting with DHL, Royal Mail or some other delivery provider. A good indicator that something is amiss is if the text asks you for payment and includes a bit.ly link. Do not click on these.
• Investment opportunities found through search engines are not necessarily authorised or regulated by the FCA.
• Always check who you are dealing with before changing your pension arrangements or transferring money to another account.
• Take time to make checks and seek financial guidance.
• The FCA helpline is 0800 111 6768 and all investment and pension providers should be registered. Financial Management is registered as Philip Harper LLP and everyone should have a unique number – ours is 485423. Search for the FCA page via Google, do not click on a link within an email.
• If you get cold-called, the safest thing to do is to hang up. If you receive unexpected offers by email or text, it’s best to simply ignore them. You can register with the Telephone Preference Service and Mailing Preference Service to reduce the number of letters and cold calls you receive. Callers may pretend they aren’t cold calling you by referring to a brochure or an email they sent you that’s why it’s important you know how to spot the other warning signs.

 We are here to help If you are unsure about any financial approaches, please contact us first.

By Philip Harper  |  May 2026

Is it wise to hold individual shares?

A question we are often asked by clients is “Should we keep our share portfolio?”

 In the 1960’s and 70’s it was quite common to buy a basket of blue-chip shares, sit back and enjoy some consistent growth and useful dividends and these portfolios were often passed down through generations. Sadly, the phrase ‘blue-chip’ share is all but gone, with virtually all shares globally seem subject to increased volatility. Even the solid names like BP, M&S, Rolls Royce and Lloyds Bank have had their well-publicised crisis points.

Many employed clients might have the option to purchase their company’s shares at a discount and this can provide some excellent opportunities. One risk to consider however is under-diversification – it’s never smart to put too many of your eggs into one basket. When you invest in the company where you work, your finances are doubly exposed. In the event your employer falters, not only might your investments tumble, but you might also find yourself out of work at the same time. Just ask former employees of Enron and Credit Suisse, who watched shares in their company plummet, while facing job uncertainty.

Our preference is to encourage clients to ‘manage out’ their shares and this is a method of swapping shares for funds, which we believe are far more appropriate and where the control of risk can be introduced. We may need to manage the process over a number of tax years if Capital Gains Tax is a consideration, but the long-term result is often highly beneficial.

Stocks and shares should be seen as a medium to long term investment, for a period of at least 5 years. The value of investments and income from them can fall as well as rise and as a result of market and currency movements and you may not get back the amount originally invested. The information contained within this communication does not constitute financial advice and is provided for general information purposes only. No warranty, whether express or implied is given in relation to such information. FMIFA or any of its associated representatives shall not be liable for any technical, editorial, typographical or other errors or omissions within the content of this communication. You should be aware that the value of an investment can fall as well as rise and that investors may not get back the amount they invested. The value of any tax relief will depend on the individual circumstances of the investor. The Financial Conduct Authority does not regulate tax advice.

By Jack Smith  |  April 2026

Deed of Variation
Want to give more to family or charity?

When someone passes away, their estate is usually distributed according to their Will or the rules of intestacy, but it can in fact be a good idea for the will outcome to be tweaked. If the beneficiaries want to make some changes, that’s where a Deed of Variation (DoV) comes in.

A DoV allows beneficiaries to redirect their inheritance, whether money, investments, property, or other assets to someone else or even a charity. It’s as if the deceased had made that decision themselves. This can be useful for inheritance tax (IHT) planning, family arrangements, or charitable giving.

Here are the key points:
• Timing matters: It must be completed within two years of death.
• Tax benefits: If more than 10% of the net estate goes to charity through a DoV,
the IHT rate on the taxable portion drops from 40% to 36%.
• No seven-year rule: Normally, lifetime gifts trigger a “potentially exempt transfer (PET)” requiring the individual making the gift to live seven years for IHT exemption. A DoV avoids that.

Because it’s a formal legal document, there are rules:

• It must be in writing, signed, and irrevocable.
• It should clearly state of course and what’s changing and who benefits.
• Each beneficiary can vary their share, but only once.
• You only need to send the DoV to HMRC if it changes the IHT payable on the
estate.
• It will incur costs to create.

A DoV may be a smart way to manage family wishes and reduce future tax depending on the circumstances, but it’s important to get it right and so legal advice will be needed.

This information is purely for information purposes and should not be construed as advice. For advice based on your individual needs and circumstances please contact your Financial Planner. Tax rates, reliefs or allowances are correct for 2025/26 tax year. These are subject to change.

By Andy Robinson |  January 2026