British Families Increase Pension Withdrawals Ahead of 2027 Inheritance Tax Reforms

Affluent British families are accelerating efforts to withdraw pension savings and transfer sums to their adult children ahead of inheritance tax changes due in April 2027. Financial advisers and pension providers report a rise in requests from clients with large defined contribution pension pots. GB News reported these actions are driven by concern over the approaching tax changes.

The reforms set to take effect from April 2027 will bring most unused pension wealth within the scope of inheritance tax for the first time. From April 6, 2027, pension savings left unused at death could be subject to a 40 per cent inheritance tax charge where the total estate exceeds the £325,000 nil-rate threshold.

Government estimates suggest an additional 10,500 estates will become liable for inheritance tax as a result of the changes.

Government estimates also suggest 38,500 estates are expected to pay more inheritance tax as a result of the changes. The average increase in inheritance tax for affected estates is estimated at £34,000 compared with current rules. Jason Hollands, managing director at wealth manager Evelyn Partners, said the planned changes are influencing behaviour among clients.

Advisers report increased interest in the £3,000 annual gifting allowance exemption that can reduce inheritance tax liabilities. Advisers also report increased interest in the seven-year rule exemption, under which gifts are usually exempt if the donor survives for seven years.

The 'normal expenditure out of income' exemption allows individuals to make regular payments from surplus income once their own living costs are covered.

Mr McCann said there is no fixed upper limit on gifts under the 'normal expenditure out of income' exemption, as the amount depends on an individual’s income and standard of living. Mr McCann said that detailed records must be kept for claims under the 'normal expenditure out of income' exemption as they are assessed after death.