71% of advisers are worried about pensions becoming liable for inheritance tax (IHT) and more than half (52%) of their clients will be impacted by the rule change, according to a new survey by Quilter.
The data was collected from over 460 independent financial advisers who provided feedback at Quilter roadshows exploring the new fiscal tax changes and the impact on financial advice.
Fiscal drag, cuts in capital gains tax (CGT) allowances, and the abolition of the lifetime allowance (LTA) have complicated and increased the tax burden on UK taxpayers. From 2027, pensions will also be subject to IHT, adding to the complexity of estate planning.
As a result, advisers expect 38% of their client book will need ‘rewrapping’ to alternative tax wrappers in the next 12 months.
A number of ways advisers could look to review existing tax wrappers include:
- re-evaluating existing general investment accounts in light of the reduced annual dividend and CGT allowances and increased rates of CGT.
- re-evaluating advice for clients who have reached their maximum PCLS amount in their pension plan now that the limit is frozen in perpetuity.
- re-evaluating IHT efficiency now that the IHT limits are frozen until 2030, and pensions are due to fall within the IHT net from April 2027.
Advisers recognise if they continue to do what they have always done, many clients will inevitably pay more tax. They are responding by revisiting strategies such as gifting surplus income, using trusts, and considering investment bonds to help clients preserve wealth.
The survey reveals strong demand for technical guidance, with 80% of advisers seeking more information on IHT and trusts, 58% looking for guidance on reframing pensions in light of IHT changes, and 52% wanting further insights into investment bonds.
Roddy Munro, head of technical sales at Quilter, commented: “The financial planning landscape is undergoing dramatic changes, prompting advisers to carefully assess the impact on their clients. The inclusion of pensions within IHT will fundamentally alter how wealth is structured for inheritance. This announcement, along with others in last year's Autumn Budget, has shone a spotlight on the importance of estate planning, forcing many to rethink traditional IHT and retirement planning strategies.
“This shift presents a significant opportunity for advisers to demonstrate the value of their expertise, as clients now more than ever need professional advice to avoid a substantial increase in their tax burden.
“We are already witnessing advisers seeking a broader array of tax wrappers and trusts to adapt to the evolving landscape. As fiscal policy continues to evolve, it is crucial for advisers to have access to clear, practical solutions to help their clients achieve the best possible financial outcomes.”
