The latest figures from HM Revenue and Customs (HMRC) revealed millions of families caught out by the continuing ‘stealth tax raid’.

British households have been hit by a staggering £12.4bn more in taxes in the past six months than the same period last year as a result of frozen thresholds and personal allowances, with the government pulling in £4.4bn from inheritance tax alone as more families are ‘quietly’ pulled into the net.

HMRC collected £154.1bn revenue during the six months from April to September this year, marking a significant rise from the £141.7bn collected over the same period the previous year. The amount raised between April and September this year is up 2.3% and is due to be a new record for the government.

The frozen threshold for Inheritance Tax, first introduced by the Conservative government and currently set to remain in place until 5 April 2030, has remained the same while inflation and wages increase, leading to workers paying much higher taxes irrespective of the headline rates. It is a similar situation for the personal tax allowance, which is currently set to remain frozen until 2027/28.

What is inheritance tax?

Inheritance Tax (IHT) is a tax levied by the Government on the estate of a deceased person in the UK. This includes all of their assets including property, personal belongings, and investments and from April 2027, it also includes pensions.  

However, this levy only applies to the total value of the estate that exceeds the IHT threshold or ‘nil-rate band’. As of the 2025/26 tax year, the threshold is set at £325,000. Anything above £325,000 could be subject to up to 40% inheritance tax and anything below this threshold is tax-free. In addition, an extra allowance known as the residence nil rate band (RNRB) of up to £175,000 may apply when a main home is passed to direct descendants, potentially increasing the total tax-free threshold to £500,000.

Traditionally pensions have been exempt from inheritance tax but, from April 2027, pensions will no longer have this exempt status. This means that inheritance tax may have to be paid on your pension when you die.

Why are IHT receipts always on the rise?

The number of estates across the UK that are being pulled into the IHT net are increasing each year.  

Total IHT receipts collected by the Government have been steadily on the rise since the IHT threshold freeze. This was initially announced by the then Chancellor, Rishi Sunak, in his 2021 Budget. The Budget outlined that the IHT threshold would be frozen for five years until 2026. However, after ex-Chancellor Jeremy Hunt’s 2023 Autumn Statement, it was confirmed that the freeze would be extended a further two years until April 2028, and then after Rachel Reeves’ 2024 Autumn Statement, this was extended once again for a further two years until April 2030.

Due to wage inflation coupled with ever increasing property value across the UK, the freeze essentially means that a greater number of people will cross the inheritance tax threshold each year in a process known as ‘fiscal drag’.

Many have been calling this move an example of ‘shadow tax’, as the freeze ultimately means an increasing number of Britons will fall into the tax threshold each year until the freeze ends in April 2030, and by then the Government will have collected billions in extra inheritance tax.

The inheritance tax allowance of £325,000 increased from £312,000 on 6 April 2009.  This means the IHT nil rate band has now been frozen for over 15 years and will continue to be frozen until at least 5 April 2030.  That’s a staggering 21 years of higher taxes on death.

If you’re interested in how to manage your inheritance tax to ensure the best possible wealth protection for you or your family, we can help. Give us a call on 0333 323 90 65 or book a free non-committal initial consultation with a member of our team to find out more. 

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions. 

The Financial Conduct Authority (FCA) does not regulate cash flow planning, estate planning, tax or trust advice. 

Rachel Reeves will deliver her second budget on 26th November 2025, and with speculation mounting regarding the potential changes, it can be hard to cut through the noise and make good decisions about what action to take, and importantly, not to take. 

What is likely to be in the Autumn Budget?

Speculation has been rife about potential changes in a number of areas, so what might these changes look like?

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Pensions

As has been the case in previous years, a reduction in individuals’ tax free cash entitlements is rumoured once again to be in the Autumn 2025 budget.  These rumours have been fuelled by reports that Pensions Minister Torsten Bell, who in 2019 had stated that the tax free lump sum should be limited to £40,000, had been appointed as a key aid for the Chancellor ahead of the budget.  However, while a change is of course possible, it is important to note that:

• When tax free cash has been reduced before (by reductions to the then Lifetime Allowance), protections (such as Fixed Protection 2012, 2014 and 2016) were put in place to ensure individuals who had already built up pension savings were not disadvantaged.
• The current Labour government previously tried to reinstate the Lifetime Allowance, which the previous Conservative government had scrapped.  However, the government abandoned these plans when they realised it was unworkable to exclude Doctors (who had been retiring due to the high tax rates they were subjected to through a combination of the lifetime allowance and the annual allowance) from the Lifetime Allowance tax charge.  Having now finalised legislation around the Lump Sum Allowance, a further change affecting Doctors’ pensions could prove very unpopular.
• Pension legislation notoriously takes months or years to finalise, as was the case with the recent Lump Sum Allowance (LSA) changes and as is currently the case with the legislation which will bring pensions into scope for inheritance tax from April 2027.  This could indicate any reduction may come into force at a given date in future, rather than with immediate effect.

To make a change ‘overnight’ would be administratively difficult for pension providers.

Capital Gains Tax (CGT) 

Despite the administrative issues associated with implementing an overnight change as outlined above, one change that was brought in with immediate effect in last year’s budget was an increase in the main rate of capital gains tax from 10% to 18% for basic rate tax payers and 20% to 24% for higher rate tax payers.  These increases weren’t as substantial as some thought they would be, so there is the possibility of further increases.  However, there are question marks over how much revenue such an increase would actually raise given individuals can simply choose to stop selling their assets.

Inheritance Tax (IHT)

This is the area that saw arguably the biggest changes in the 2024 budget with:

• Pensions brought into scope for inheritance tax purposes from April 2027
• Business Relief and Agricultural Relief limited to £1m per person and 50% of the full rate thereafter
• AIM shares Inheritance Tax Relief limited to 50% of the full rate   

The government may see the estimated £5.5 trillion of wealth that is expected to be passed down from ‘Baby Boomers’ over the next two decades (known as the ‘Great Wealth Transfer’) as a target for additional taxation. This could include a tax on gifting (currently gifting to individuals is unlimited if the donor lives 7 years from the date of the gift) or a reduction in the tax free allowances available on death (for example the removal of the Residence Nil Rate Band – RNRB).  For this reason, those considering making a gift in the not too distant future could consider making the gift before the budget, though only if the implications of this on their overall financial situation are fully understood.   

ISAs 

There are rumours that there will be a reduction to the Cash ISA allowance. However, a cut to the Stocks and Shares ISA allowance is perhaps less likely given Reeves spoke positively about Stocks and Shares ISAs in her Mansion House speech in July.

Salary Sacrifice

This is the ability for employees’ pension contributions to be paid directly into their workplace pensions, reducing both employer and employee national insurance contributions.  Limiting or removing the ability to do this could raise significant revenue for the government without them needing to renege on their manifesto commitment not to increase tax on working people (income tax, national insurance or VAT).

Other rumours 

Other recent rumours include: 

• An increase in tax with a corresponding reduction in National Insurance.  This could in theory raise revenue without raising tax on ‘working people’, with landlords and pensioners instead footing the bill.
• A further freezing of income tax bandings.  Though this is described by many as a stealth tax as it means more and more individuals will move into higher tax bandings over time, these have been frozen since 2021/22 until 2028 and an extension of this freeze to 2029/30 could raise an estimated £7bn p.a.
• A tax on Limited Liability Partnerships (LLPs) favoured by Solicitors, Accountants and Doctors, as such arrangements allow individuals to be self-employed and not subject to employer’s national insurance contributions.
• A windfall tax on banks, though the Chief Executive of Lloyds Banking Group Chalie Nunn argued this would impact banks’ ability to lend.

An increase in gambling taxes, though the Chairman of Betfred Fred Done has stated all its shops on UK high streets could close if the rumoured changes were implemented. 

When does the Autumn budget take effect? 

Though the budget will take place on 26th November 2025, most changes are expecting to come into effect from the next tax year on 6 April 2026 and beyond.

What can you do to protect your wealth?

In an environment where taxes are increasing, it is becoming more and more important to:

Utilise the various tax allowances that are available to you and your family, for example:

• Your ISA allowances
• Your pension contribution allowances
• Your capital gains tax, savings and dividend allowances
• Your personal income tax allowance.

Have a plan in place with diversified sources of income and investments.  This way you can adapt your plan as a result of any changes in the budget.

In summary, it is clear that the state of public finances mean taxes will need to increase in the upcoming budget and Labour’s manifesto commitment not to increase tax on ‘people working’ has led to mounting speculation that changes will be made to a number of different areas. These headlines are usually followed by a quote from a leader within the industry in question stating how the tax increase would be devastating for that industry and how the government should look elsewhere. As Private Eye’s headline from September rightly stated: ‘Raise taxes for other people’, agrees everyone, so some difficult decisions will need to be made.

To consider the potential impact of the budget on your overall financial situation, please get in touch or contact your TPO Adviser. 

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions. 

The Financial Conduct Authority (FCA) does not regulate cash flow planning, estate planning or tax advice. 

The information contained within this article is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change.

A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). 

The value of your investments (any income derived from them) can go down as well as up, so you could get back less than you invested.  This could also have an impact on the level of pension benefits available.

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change. You should seek advice to understand your options at retirement.

When is the Autumn Budget? 

As we head into the final months of the year, attention is turning towards one of the key economic milestones, the Autumn Budget. Scheduled for 26th November this year, the Budget is an essential part of the financial calendar, not just for policymakers and economists, but for households, businesses and advisers to understand the direction of travel.

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While every Budget matters, the stakes feel especially high this year. The economic outlook remains uncertain, government borrowing costs have rocketed, and a growing number of taxpayers are already feeling the pain from continued frozen allowances and the changes announced in last year's Budget.

So, what exactly is the Autumn Budget for, and why is it such an important event? 

Understanding the Budget’s role 

The Autumn Budget is the government’s main opportunity each year to set out its plans for taxation, public spending and economic strategy. It’s when the Chancellor outlines how the government will raise and allocate money in the year ahead, usually supported by economic forecasts from the Office for Budget Responsibility (OBR).

These forecasts cover everything from inflation and interest rates to borrowing, debt levels, and projected economic growth, all of which shape the decisions being made in the Budget itself.

The Autumn Budget is often accompanied by a Spending Review, which sets departmental budgets for the medium term, though not necessarily every year. In contrast, the Spring Statement, usually delivered in March, tends to be lighter, more of an economic update than a full fiscal event, though it can include policy changes when needed.

In recent years, the Autumn Budget has become the main fiscal moment of the year. The Spring Statement, while still useful, is generally more reflective in tone. Some recent commentary has suggested that the government may be considering a move to just one formal fiscal event per year, but as of now, the current two-event framework remains firmly in place. 

Raising revenue by stealth 

One of the most effective tools for raising revenue in recent times has been the simple decision to freeze tax thresholds and allowances, rather than increase them in line with inflation. This is often referred to as “fiscal drag” or stealth tax.

The concept is straightforward. When income tax thresholds stay fixed, but wages rise, even modestly, more people are pulled into higher tax bands. Likewise, with allowances reduced for capital gains or frozen for inheritance tax, for example, more estates and investments gains become taxable over time.

These quiet changes can bring in billions in additional revenue without altering headline tax rates, and they’ve become a central part of the government’s fiscal approach. The freeze on the personal allowance and higher-rate income tax threshold began in 2021 and is currently extended to at least 2028, with rumours this could be further extended in the coming Budget.  

For financial planning, this makes the Autumn Budget a critical event. It’s not just about new taxes or reliefs being introduced or withdrawn; it’s about understanding how existing policies evolve by, some cases, staying exactly the same.

How will the Autumn Budget affect me?

With the Autumn Budget fast approaching, attention is turning to what the Chancellor might announce this time around.

While nothing is confirmed, early speculation includes: 

• An extension of existing tax band freezes, particularly income tax and inheritance tax thresholds
• Restrictions on pension tax reliefs or changes to contribution limits
• Restrictions on the tax-free cash available from pensions, though it is important to remember when the tax-free lump sum has been reduced before, protections were put in place to ensure individuals who had already built up savings in their pensions were not disadvantaged.
• Property tax reforms, potentially around stamp duty or council tax
• ISA reforms, possible reduction in the Cash ISA allowance 

This is purely speculation at this point so it’s advisable not to make rash decisions before knowing exactly what the outcome will be. However, given the current economic environment, including sluggish growth and high debt interest costs, the government has limited room to manoeuvre, so sadly it’s wise to be prepared. Potentially, if there were financial decisions you were planning to make anyway, that could possibly be impacted by the Budget, now could be the time to make them. 

How we can help 

Whether you're a business owner, investor, retiree or employee, the Autumn Budget can affect you in ways both obvious and subtle. Whether through active policy changes or passive revenue generation via fiscal drag.

We’re following developments closely now and in the run-up to November’s announcement. We’ll be keeping these pages updated with the latest news, including on the day of the Budget with a full run down of all the announcements

In the meantime, if you’re concerned in anyway how the Budget may affect your finances, why not get in touch and see if we can help. 

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The Financial Conduct Authority (FCA) does not regulate cash flow planning, estate planning, tax or trust advice.

FAQs

The UK tax authority is increasing scrutiny of pension tax relief claims made by higher earners in an effort to “protect taxpayers’ money,” as part of a broader initiative to boost revenue collection.

HM Revenue & Customs (HMRC) announced on Thursday that starting September 1st, it has “lowered the threshold” at which claimants must provide evidence to support their pension tax relief requests. In addition, claims can no longer be made by phone and must instead be submitted online or by post.

Last year, the Labour government pledged an additional £555 million annually in HMRC funding, aiming to generate an extra £5 billion in yearly tax revenue by the end of this parliament.

HMRC said it is reducing the evidence threshold for personal pension tax relief claims following a review that found “many claims below the current evidence threshold were incorrect.” The move, it said, is intended to “protect taxpayers’ money.”

Each year, around 80,000 personal pension relief claims are submitted. HMRC’s review of claims under £10,000 showed that one in three required the claimant to amend the amount claimed.

What is pension tax relief?

Pension tax relief is a government incentive that helps you save more efficiently for retirement by reducing the tax you pay on your pension contributions. When you pay into a pension, some of the money that would have gone to HMRC is instead added to your pension pot.  

If you're a basic-rate taxpayer (20%), contributing £80 means the government tops it up with £20, so £100 goes into your pension. Higher-rate taxpayers (40%) and additional-rate taxpayers (45%) can claim back even more through their self-assessment tax return, reducing the real cost of saving even further. It’s one of the most tax-efficient ways to build your retirement fund.

Tax relief is often financially beneficial, but it is important to remember that there are limits and restrictions. For more information, check out our article on how to be tax efficient with your pension contributions.  

What’s changed?

HMRC has made a few changes to claims for tax relief on personal pension contributions which came into effect on 1st September. Below are some of the key changes.

• All pay as you earn (PAYE) claims for pension tax relief must be made online or by post and must be supported by evidence from the pension provider or employer.
• HMRC will not accept claims made via the telephone.  
• All claims must be made using HMRC’s online service or by letter; and all claimants need to provide evidence in support of their claim.  

Prior to 1 September 2025, only those claimants who met the conditions set out in HMRC’s guidance were required to provide evidence. The evidence required is a letter or statement from the pension provider or a payslip from the employer showing:

• The claimant’s full name;
• Details of the pension contributions paid and the tax year they relate to; and
• Where the claim relates to a workplace pension, that the claimant received 20% tax relief automatically from their employer.  
• Evidence needs to be provided for each tax year that a claim is made for.  

For more information please read further on gov.uk.  

If you want to find out more about how you can make the most your pension tax reliefs and allowances, why not give us a call on 0333 323 9065 or book a free non-committal initial consultation with one of our chartered advisers to find out how we might be able to help you.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The Financial Conduct Authority (FCA) does not regulate cash planning or tax advice.

The terms advice and guidance are often used interchangeably when it comes to financial matters, but in reality, they are very different. And in today’s fast-changing financial landscape, understanding this difference is essential.

Since the introduction of the Pension Freedoms in 2015, individuals have had greater control over how and when they access their defined contribution (DC) pension pots. In response, the government established services to offer free, impartial guidance aiming to help people aged 50+ understand their options and avoid costly mistakes.

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One such service is the MoneyHelper platform, provided by the Money and Pensions Service (MaPS), previously known as Pension Wise. The idea was (and still is) to ensure people receive basic, unbiased information before making decisions about their retirement income.

As UK Pensions Minister Guy Opperman put it, “We will introduce new provisions requiring trustees of occupational pension schemes to nudge members to appropriate guidance when they seek to access their pension through the pension freedoms.”

This “nudge” while helpful, begs the question: is general guidance really enough when you're making decisions about what could be hundreds of thousands of pounds of lifetime savings?

What’s the difference between guidance and advice?

Guidance

Guidance is all about information rather than recommendations that are specifically tailored to your situation. It helps you better understand the options available, but the responsibility to decide and act lies entirely with you.

Government services like MoneyHelper for example, or your pension provider’s website may offer generalised content, online tools, or telephone support to guide you through the basics of pensions, investments, or budgeting.

In fact, anyone, including friends or colleagues, can technically give “guidance”. But remember, they aren’t liable for the outcome, and you're not protected if things go wrong.

What you won’t get from guidance:

• Personalised recommendations
• Product suggestions
• A risk assessment of your circumstances
• A regulated professional who is accountable for their advice

Advice

Advice, by contrast, is personal, specific, and regulated. When you take financial advice, you're working with a qualified and authorised Financial Adviser who assesses your entire financial situation, whether that be your goals, risk tolerance or future plans, then recommends a course of action tailored to you.

You’re also protected. Advisers are regulated by the Financial Conduct Authority (FCA) and must adhere to strict standards. If something goes wrong, you may have access to the Financial Ombudsman Service and Financial Services Compensation Scheme.

What about the cost? And is it worth it?

Guidance is usually free and is offered by government-backed services or your pension/investment provider, for example. It’s a good starting point, especially if you just want to understand your options or educate yourself.

Advice, however, is a paid professional service, and like any other expert service, the cost reflects the time and complexity involved.

There are two main types of advisers:

• Independent Financial Advisers (IFAs), who offer whole-of-market advice across a full range of products and providers. All our advisers at The Private Office are Independent Financial Advisers.
• Restricted Advisers, who are limited in the scope of advice they can give, often tied to a particular provider or product range.

Choosing the right type of adviser can significantly impact your financial outcomes. Independent advice means you're more likely to get the best solution for you rather than for the adviser’s institution. 

The rise and possible risks of AI in financial guidance

A key change in the advice landscape is the increasing use of Artificial Intelligence (AI), particularly Large Language Models (LLMs) like ChatGPT and other advanced systems. 

Using LLMs as a substitute for regulated financial advice carries several risks. To be balanced, however, on one hand, there are benefits, including speed, ease of access and lower (or no) cost. But the pitfalls are real and therefore need to be carefully considered.

Here are some of the potential risks:

1. Inaccuracy & outdated / partial information
   LLMs may rely on data that is not fully up to date, or doesn’t reflect recent regulatory, tax or product changes. They also generate plausible‑sounding but false or misleading information, known as hallucinations, from time to time.
2. Lack of holistic view
   AI tools typically only see what you tell them. They can’t pick up life‑events you haven’t mentioned, emotional preferences, long‑term goals, or unexpected future needs. A human adviser can ask probing follow‑up questions to uncover things you may not have thought to tell them.
3. No regulatory protection
   Advice from AI tools is not regulated in the way financial advice from an FCA‑authorised adviser is. If things go wrong, there is no ombudsman to make claims, no compensation scheme, and no requirement that those giving the advice act in your “best interests.”
4. Overconfidence & misplaced trust
   Because LLMs are good at generating fluent, confident text, people may overestimate their reliability.
5. Potential for financial loss
   Applying generic or inappropriate advice could cost money e.g. picking wrong investment vehicles or mismanaging tax implications.

The value of advice is still stronger than ever 

It can often be a daunting task for individuals to think about their financial futures. Working with a qualified financial adviser can help to alleviate the burden of worry, become better educated on their finances and receive actionable advice on how to improve their situations.

An update to the International Longevity Centre’s research showed the long-term value of advice:

• Advised individuals can be up to 24% better off after a decade compared to those who don’t take advice.
• The benefits are especially strong for those with modest wealth, proving that advice isn't just for the wealthy.
• Those who seek advice regularly (e.g. annually) see even stronger outcomes over time. 

In Summary – Guidance vs Advice

You get what you pay for, and when it comes to your lifetime savings and financial future, that advice could make all the difference.

Start with a free, no-obligation consultation

If you’re thinking about the next stage in your financial journey and want trusted, independent advice, get in touch to arrange your free consultation with a qualified adviser. 

At The Private Office, we offer chartered, independent, whole-of-market advice, recognised as the gold standard in the industry. If you have £100,000 or more in pensions, savings or investments, you can start with a free initial consultation (worth £500) with one of our regulated Financial Advisers.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The Financial Conduct Authority (FCA) does not regulate tax advice or cashflow modelling.

An inheritance is often a moment of mixed emotions. It represents a significant financial event, but it is also a legacy from someone you cared for. This gift comes with a profound sense of emotional and financial responsibility. While, in some cases, it can feel like a life-changing opportunity, a survey by Capital Group reveals a less optimistic picture: a staggering 60% of those who have inherited wealth regret how they handled it. This widespread sentiment of dissatisfaction is a stark reminder that managing a sudden financial windfall, especially one rooted in such a personal loss, is more complex than it seems.

The Finfluencer trap and under-utilised funds

In today's digital age, it's easy to get lost in a sea of social media “finfluencers” promising quick and easy investment tips. The study revealed that a larger number of millennials turn to these online personalities for advice than to professional financial advisers, 27% versus 18%. While it might be tempting to get your advice from a flashy online personality, a costly mistake could be the result.

It’s not just bad advice causing the problems. A large portion of inherited capital is simply sitting still. The research showed that only 22% of inherited funds are invested in securities or mutual funds, and a mere 11% are put into a pension fund. This inertia means the money isn't working for you. In fact, due to inflation, it might even be losing value. It's no wonder that a third of inheritors wish they had invested more.

The UK's wealth transfer is underway

The UK is on the cusp of an unprecedented generational wealth transfer, with an estimated £5 trillion in assets set to be passed down over the next two decades. This monumental transfer presents an incredible opportunity, but as the survey data shows, many people are unprepared to navigate it alone.

While many people rely on lawyers and accountants to handle the initial succession process, these professionals may not be the best source for long-term investment advice. The survey found that while three out of five people used lawyers and almost half used accountants, only 15% consulted a financial advisor. However, the benefits of professional guidance are clear: 78% of those in the UK who did seek advice felt better informed about managing their new wealth.

Working with a qualified financial adviser can help you make the most of an inheritance. They can provide a personalised roadmap for long-term growth, tax efficiency, and helping you to shape and achieve your financial goals.

Turning your inheritance into a lasting legacy

The lesson from this research is clear: to avoid future regrets, seeking professional financial advice is essential. This ensures that the wealth you've received is not only protected but positioned for sustainable growth. Don't let your inheritance sit idle. With the right strategy, you can transform what could be a significant gift into a lasting legacy.  

Note: The findings were from a survey of 600 high net worth individuals across Europe, Asia Pacific and the US by investment manager Capital Group. 

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The Financial Conduct Authority (FCA) does not regulate estate planning, tax or trust advice. 

Investment returns are not guaranteed, and you may get back less than you originally invested. Past performance is not a guide to future returns. 

New regulations being considered could restrict the ability of parents to make unlimited tax-free gifts to their children. If the rumours are true, these regulations will be announced during the upcoming autumn Budget on 26 November.  

The Treasury is reportedly looking at introducing a lifetime cap on the value of gifts an individual can give away to reduce their inheritance tax liability. This move, along with potential changes to capital gains tax, is said to be under consideration by Chancellor Rachel Reeves as she seeks to address a potential fiscal deficit ‘black hole’ of up to £50 billion in the upcoming autumn Budget.

Currently, an unlimited amount of money and assets can be gifted to friends and relatives without incurring inheritance tax, under the condition that the transfer happens at least seven years before the person giving the gift passes away. This is known as the ‘7 year rule in inheritance tax’.

In short, a ‘taper tax rate’ of between 8% and 32% is applied to gifts given between seven and three years before death. Money given less than three years before is taxed at the full inheritance tax rate of 40%.

Essentially, the proposed lifetime cap on gifts would enable the Treasury to exercise yet another avenue of tax collection from gifts given by parents to children many years earlier than before.  

There have also been rumours that the 7 year rule could be extended to 10 years, in a further bid to increase tax take.

What is inheritance tax?

Inheritance Tax (IHT) is a tax levied by the Government on the estate of a deceased person in the UK. This includes all of their assets including property, personal belongings and investments.  

However, this levy only applies to the total value of the estate that exceeds the IHT threshold or ‘nil-rate band’. As of the 2025/26 tax year, the threshold is set at £325,000. Anything above £325,000 could be subject to up to 40% inheritance tax and anything below this threshold is tax-free. Those passing down their main residence to direct descendants also have an additional allowance of £175,000. This means up to £500,000 per person or £1million for a married couple, can currently be passed down free of inheritance tax.

Currently, pensions are exempt from inheritance tax but from April 2027, pensions will form part of your estate for inheritance tax purposes. This means that after April 2027, inheritance tax may also need to be paid on your pension when you die (depending on the overall taxable value of your estate). 

If you’re interested in how to manage the potential inheritance tax bill on your estate, to ensure the best possible wealth protection for you or your family, we can help. Give us a call on 0333 323 9065 or book a free non-committal initial consultation with a member of our experienced team to find out more.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The Financial Conduct Authority (FCA) does not regulate estate planning, tax or trust advice. 

The Government, following consultation, has now confirmed legislation on a significant change to how pensions will be treated for inheritance tax (IHT) purposes. 

From April 2027, most unused pension funds will count as part of a person’s estate when they die. This means that for the first time, inheritance tax may be due on pension pots left to loved ones. It marks a major shift in how pensions are used in estate planning and will have important consequences for those who had hoped to pass on their pension savings free of Inheritance tax.

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This will be of particular concern to those with larger pension pots or those who have been deliberately preserving their pensions to pass on their wealth. If that’s you, or someone in your family, it’s well worth taking time now to think about how to adapt your financial planning strategy. Speaking to your financial adviser will help clarify what steps you should take.

Who will be responsible for the reporting and payment of inheritance tax on unused pension funds?

Before consultation, the government proposed pension scheme administrators (PSAs) should both report and pay IHT on unused pension funds. After feedback following the consultation, the policy was changed so that personal representatives (i.e estate executors or administrators) will be responsible for reporting and paying IHT on unused pension funds - in line with standard inheritance tax procedures. Payment will be a joint and several liability with the beneficiaries, once death benefits are appointed to specific beneficiaries.

A new scheme will be established which will allow beneficiaries to request payment of IHT liabilities to HMRC directly from the pension fund (like the direct payment scheme), but the payment will be limited to liabilities due on pension funds and not the entirety of the estate. More details are awaited on the scheme. In addition, this change means that pension scheme administrators will be able to distribute benefits from the pension fund to beneficiaries before probate is obtained on the deceased's estate.

This does add a layer of administrative complexity post death and does mean that if you hold pensions benefits across a variety of different providers it could create a headache for your personal representatives and hinder speedy settlement of benefits. Where appropriate, consolidating existing pension pots during your lifetime into one provider will certainly help ease this process.  

Will my spouse or civil partner be subject to an IHT liability when inheriting my pension?

The scope of what types of pension benefits will be included in the new IHT regime has been confirmed and we now know that unused pension funds passed to a surviving spouse or civil partner will be exempt. Payments from death in service benefits, if you die whilst employed, are also exempt, even if they are written under a pension trust. Also scheme pensions paid from an occupational scheme to a surviving spouse or joint life annuities, where the income continues to be paid to a surviving spouse or civil partner, are also exempt.

Will beneficiaries face both inheritance tax and income tax on inherited pensions?

Potentially, yes. From April 2027, the value of the unused pension will form part of the estate for IHT purposes. If the deceased was aged 75 or over, any money their beneficiaries withdraw from the pension will also be subject to income tax. That means in some cases, the combination of inheritance tax and income tax could result in a significant chunk of the pension pot being lost to tax. In certain instances, the total tax take could reach as high as 67%.

Should people use their pensions during their lifetime instead?

It’s a question many will be asking. If a pension is likely to face inheritance tax when they die, does it make sense to start drawing from it now? The answer isn’t straightforward and needs to be considered on a case-by-case basis.  On the one hand, reducing your pension before death could lower the potential IHT liability. On the other hand, taking large withdrawals now might push you into a higher income tax bracket, especially if you’re still working or have retired with significant defined benefit pensions in payment. You’ll also need to think about whether you might need those funds later in life. Advice tailored to your specific requirements will be required to ensure that you make a fully informed decision in this regard.

Could annuities be part of the answer?

One option that may be worth considering is using part or all of your pension to buy an annuity. This turns your pension into a guaranteed income during your lifetime, which means there would be less left over in your pension pot to be subject to IHT post death.

Annuities aren’t for everyone, but they can, especially later in life, provide peace of mind and help reduce inheritance tax exposure at the same time. What’s more, annuity rates are generally higher for older individuals, which makes them potentially more attractive for clients aged 75 and over.

However, once again, suitability is down to your own individual circumstances and will require individual advice.  It should be noted that certain features which can be added to annuities are already subject to IHT e.g. guarantee periods and valuation protection payments, unless paid under discretionary powers.

Could insurance help cover the inheritance tax bill?

Another strategy might be to take out a whole of life insurance policy, written in Trust, designed specifically to cover the inheritance tax due on your pension. This means your beneficiaries effectively receive the full value of the pension, and the tax bill is paid separately from the insurance proceeds. You could even consider using pension withdrawals to fund the insurance premiums – although this too could trigger income tax, so it’s important to weigh up the costs and benefits carefully. It’s not a one-size-fits-all solution, but it could be worth exploring as part of a broader plan.

Family tax planning strategies

Planning as a family can make a real difference. For instance, if you have more income than you need to live on, you could potentially use the ‘normal expenditure out of income’ exemption to gift money each year without it being counted for inheritance tax. Children could then use those gifts to make their own pension contributions. If they’re higher rate taxpayers, they’ll also benefit from income tax relief over and above the basic rate relief received automatically at source.  In effect, this helps reclaim the tax you’ve paid on your pension income into tax-efficient savings for the next generation.

Coordinating this kind of plan with a solicitor ensures everything lines up with your will and long-term succession goals.  It will also be necessary to take specialist tax advice when seeking to use the ‘normal expenditure out of income’ exemption.  

Looking ahead

This change to inheritance tax on pensions is one of the most important shifts in estate planning in recent years. It brings pensions into line with other assets for tax purposes and will impact many families who had relied on them as a tax-free way to pass on wealth. While the new rules may feel like a blow, there are still a number of ways to plan effectively. Whether it’s exploring annuities, considering insurance, or using income to support family gifts, there are strategies available.

The key is to start planning now for 2027. Speaking to your financial adviser will help you understand the best course of action based on your age, pension size, and goals for your estate. With the right approach, it’s still possible to make your pension work hard for you and your family – both now and in the future.

If you’d like to learn more about how we can minimize the potential tax bill on your estate, why not get in touch for a free initial consultation.

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This article is for information only and does not constitute individual advice. The information provided in this article is based on the current allowances and legislation and is subject to change.

The Financial Conduct Authority (FCA) does not regulate trust or tax advice.

A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). The value of your investments (and any income from them) can down as well as up which would have an impact on the level of pension benefits available.  

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change. You should seek advice to understand your options at retirement.

Inheritance Tax receipts reached £2.2bn in Q1 (Quarter 1) of the 2025/26 tax year.

This marks a £100m or 4.8% rise compared with the same period last year, according to the latest figures published by HM Revenue & Customs (HRMC), extending a run of record-breaking receipts year-on-year.  

HMRC pointed to higher asset values (such as property), a greater number of wealth transfers after death, and the continued freeze on tax-free thresholds as key factors behind the rise. The substantial increase follows ongoing momentum despite a recent cooling in the property market.

What is inheritance tax?

Inheritance Tax (IHT) is a tax levied by the Government on the estate of a deceased person in the UK. This includes all of their assets including property, personal belongings, and investments.  

However, this levy only applies to the total value of the estate that exceeds the IHT threshold or ‘nil-rate band’. For the current 2025/26 tax year, the threshold continues to remain at £325,000.

As of the 2009/10 tax year, the threshold has continued to remain at £325,000. Anything above £325,000 could be subject to up to 40% inheritance tax and anything below this threshold is tax-free.

Traditionally pensions have been exempt from inheritance tax but, from April 2027, pensions will no longer have this exempt status. This means that inheritance tax may have to be paid on your outstanding pension pot when you die.

Why are IHT receipts always on the rise?

The number of estates across the UK that are being pulled into the IHT net are increasing each year.  

Total IHT receipts collected by the Government has been steadily on the rise since the IHT threshold freeze. This was initially announced by the then Chancellor, Rishi Sunak, in his 2021 Budget. The Budget outlined that the IHT threshold would be frozen for five years until 2026. However, after ex-Chancellor Jeremy Hunt’s 2023 Autumn Statement, it was confirmed that the freeze would be extended a further two years until April 2028, and then after Rachel Reeves’ 2024 Autumn Statement, this was extended once again a further two years until April 2030.

Due to wage inflation coupled with increasing property value across the UK, the freeze essentially means that a greater number of people will cross the inheritance tax threshold each year. Many have been calling this move an example of ‘stealth tax’, as the freeze ultimately means an increasing number of Britons will fall into the tax threshold each year until the freeze ends in April 2030, and by then the Government will have collected billions in extra inheritance tax.

The inheritance tax allowance of £325,000 increased from £312,000 on 6 April 2009.  This means the IHT nil rate band has now been frozen for over 14 years and will continue to be frozen until at least 5 April 2030. That’s a staggering 21 years of frozen allowances.  

If you’re interested in how to manage your inheritance tax to ensure the best possible wealth protection for you or your family, we can help. Give us a call on 0333 323 9065 or book a free non-committal initial consultation with a member of our team to find out more. 

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This article is for information only and does not constitute individual advice. The information provided in this article is based on the current allowances and legislation and is subject to change.

The Financial Conduct Authority (FCA) does not regulate tax advice.

Over the past few years, millions of people across the UK have found themselves quietly paying more tax, even if they haven’t seen a single change to their tax rate. This subtle yet powerful shift in the nation’s tax landscape has not been driven by headline-grabbing announcements, but rather by what are commonly referred to as “stealth taxes.” These measures raise government revenue not through overt rate increases, but via frozen thresholds and shrinking allowances, often going unnoticed until the financial pinch begins.

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A surge in pensioners paying higher tax

New figures obtained from HM Revenue and Customs under the Freedom of Information Act reveal just how widespread this issue has become. According to Steve Webb, former Pensions Minister, the number of pensioners now paying income tax at the higher (40%) or additional (45%) rates has more than doubled in just four years. In 2021/22, around 494,000 pensioners were affected; today, that number has surpassed one million.
Even more revealing is the total number of pensioners paying income tax at any level. This has risen from 6.7 million to 8.8 million over the same period, an increase of nearly a third. This is not due to tax rate hikes, but instead to frozen thresholds and rising pension income pushing more retirees into tax-paying brackets.

How fiscal drag is quietly hitting retirees

At the heart of this trend is a phenomenon known as “fiscal drag.” This occurs when tax thresholds remain static while incomes, particularly pensions, increase with inflation. The personal allowance and higher-rate threshold have both been frozen since 2021 and are expected to remain frozen until 2028. During this time, state and private pensions have risen, mainly due to inflation and the government's commitment to the triple lock.
From April 2025, the full new state pension rose to £11,973, just below the £12,570 personal allowance. This means that for anyone with a modest workplace or private pension on top of their state entitlement, paying income tax has become the norm rather than the exception.

More than just Income Tax

Crossing into higher-rate tax bands doesn’t just mean paying more on income, it also has knock-on effects for other allowances. For instance:
•    The Personal Savings Allowance is halved from £1,000 to £500 for higher-rate taxpayers.
•    The Dividend Allowance has been reduced in recent years, currently sitting at just £500 (down from £2,000 in 2022).
•    The Capital Gains Tax exemption was halved to £3,000 from April 2024, falling from a high of £12,300 in 2022/23 tax year.
For those crossing into the additional rate tax band (which was lowered from £150,000 to £125,140 in 2023/24) these allowances are cut even more sharply. In the case of savings interest, the Personal Savings Allowance is removed entirely.

Rising Tax bills for savers and investors

Stealth taxation is not just affecting pensioners. The Personal Savings Allowance has remained unchanged since it was introduced in 2016. For years, with ultra-low interest rates, this wasn't a major issue. But the tide has turned.
With the Bank of England increasing interest rates to tackle inflation, savings accounts are now generating more interest and more tax. In the 2022/23 tax year, 1.77 million people paid tax on their savings interest, up from just 970,000 the year before. HMRC reports that the amount raised from this alone more than doubled from £1.2 billion to £3.4 billion.
In the 2023/24 tax year, an estimated 1.9 million people paid tax on their savings interest, up from 1.77 million the year before and just 970,000 in 2021/22. According to HMRC the amount raised from tax on savings interest surged to a record £9.1 billion, more than double the £3.4 billion collected in 2022/23, and over seven times the £1.2 billion from 2021/22. Projections for 2024/25 suggest that over 2 million savers will pay tax on interest, with HMRC expecting to collect £10.4 billion.

A Growing Inheritance Tax catch

Another stealth tax that continues to ensnare more households is Inheritance Tax (IHT). The nil-rate band for IHT has been frozen at £325,000 since 2009. Over this time, property and asset values have risen dramatically. As a result, more estates now breach the threshold and face IHT liabilities. Although, in 2017 the Residence Nil Rate Band was introduced which permitted individuals, passing down their main residence to direct descendants, an additional allowance of up to £175,000. Meaning, for married couples/ civil partnerships up to £1million could be passed down free of IHT. However, those estates of over £2 million would be subject to tapering. You can read more about this here.

In 2024/25, IHT receipts hit a record £8.2 billion. With the freeze extended until at least 2030 and no indication of major reform, families are increasingly vulnerable to unexpected tax bills, even those with relatively modest estates.

What can be done? The case for proactive planning

While stealth taxes are largely outside of our control, their impact doesn’t have to be. With careful planning, it’s possible to reduce unnecessary tax exposure and protect long-term wealth. Strategies may include:

• Making full use of ISAs for tax-free savings and investments
• Structuring pension drawdowns to minimise tax liabilities
• Gifting assets in a tax-efficient manner to reduce IHT exposure
• Reviewing income regularly to avoid crossing thresholds unnecessarily
• Increasing pension contributions to lower taxable income through salary sacrifice.

Each individual’s situation is different, and the tax system is becoming increasingly complex. For many, professional advice can help clarify their position and create a clear, forward-looking financial strategy.

60% tax trap

For those earning between £100,000 and £125,140, the tax system becomes especially punitive. In this income band, individuals lose £1 of their tax-free personal allowance for every £2 earned above £100,000, effectively creating a 60% marginal tax rate. This stealthy threshold has increasingly drawn in middle- and upper-middle earners, particularly as it hasn’t been adjusted for inflation since 2010. Despite rising wages and fiscal drag, the government has so far resisted reform, leaving many professionals facing disproportionately high tax bills.

Staying ahead in a shifting tax landscape

As the government continues to rely on threshold freezes to raise revenue without increasing tax rates, more households, particularly pensioners, will feel the squeeze. These are not sudden shocks, but slow, creeping changes that can significantly erode financial wellbeing over time.

Understanding the full picture and taking early, informed action is key. Whether you are drawing a pension, managing savings, or planning your estate, speaking with a qualified financial adviser can help you navigate the challenges ahead and ensure your finances remain aligned with your goals.

If you’re concerned about an increasing tax burden on your wealth why not get in touch and speak to one of our financial advisers to see how we can help.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The Financial Conduct Authority (FCA) does not regulate estate planning or tax advice.

The information in this article is based on current laws and regulations which are subject to change as at future legislations.

A pension is a long-term investment. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.