The government’s latest proposals on pensions and inheritance tax have set the stage for a profound reset in wealth transfer. For decades, pensions provided an elegant shelter for passing wealth across generations, a mechanism investors could rely on with quiet certainty. That certainty is now being tested, and the impact reaches far beyond tax planning into the way wealth itself is structured for the future.
From April 2027, unused pension funds will form part of an individual’s taxable estate, bringing them within the inheritance tax net at the standard rate of 40 percent. This represents a break from longstanding policy, where pensions were deliberately kept outside of the calculation and seen as one of the most efficient ways to pass wealth on. For high-net-worth individuals, particularly those with large self-invested personal pensions or company schemes, the implications are striking.
The timing is not coincidental. More estates are already being drawn into inheritance tax due to frozen thresholds and rising asset values, particularly in property and investments. Including pensions in this equation effectively expands the scope of taxable wealth at precisely the point when families are already seeing exposure grow.
Running alongside this are reforms to business relief, taking effect in April 2026. A new £1 million allowance will apply to unquoted business and agricultural assets qualifying for full inheritance tax relief. On the surface, this looks generous, but it is capped and not transferable to a surviving spouse. For business owners who once relied on a broader exemption, the change signals a more restrictive environment. The government appears intent on limiting the scale of assets sheltered from inheritance tax, even for enterprises that would once have qualified in full.
Arbuthnot Banking Group PLC (LON:ARBB), operating as Arbuthnot Latham, offers private and commercial banking products and services in the United Kingdom. Established in 1833, Arbuthnot Banking is headquartered in London, United Kingdom.
