Finance Act 2026 · Royal Assent 20 March 2026

Pension IHT Planning for Clients Over 75 — Finance Act 2026

From April 2027, pension funds will face both Inheritance Tax and income tax simultaneously. For many clients, this creates a combined charge of up to 67% — a double tax that did not previously exist.

For clients already over 75, this is a live planning issue today, not a future risk. The income tax charge on death benefits has applied since 2015. IHT is new from April 2027.

There is a structured, FCA-regulated solution that eliminates both taxes — the income tax charge from the day of transfer, and IHT after two years.

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— days
to April 2027
Finance Act 2026 takes effect 6 April 2027
BPR qualifying period is 2 years · Act now to start the clock
£500,000 pension · client over 75 · no spousal exemption
IHT @ 40%−£200,000
Beneficiary income tax @ 45%−£135,000
Net to children£165,000
33p in every pound reaches the next generation
With the FPA · after 2 years
IHT — 100% BPR£0
Income tax via Pref Share£0
Net to children£472,700
Finance Act 2026 · Royal Assent 20 March 2026.  April 2027 is now less than 12 months away. For clients over 75, income tax on death benefits can be eliminated from the day of transfer. The 2-year BPR clock starts immediately.
⚠ For professional adviser use only — not for client distribution. The information on this site does not constitute financial, tax or legal advice. Tax treatment depends on individual circumstances and is subject to change. BPR is not guaranteed — past claim success does not guarantee future outcomes. The value of pension investments can go down as well as up. Independent advice required before any recommendation is made to a client.  Full risk warning ↓
Aetas Wealth · Pension Legacy Planning · For professional adviser use only

The Pension Legacy Problem — and the Solution

For clients aged 75 and over, pension wealth is now exposed to a double tax risk that did not previously exist in this form.

Under current rules, pension death benefits for over-75s are already subject to income tax in the hands of beneficiaries. From April 2027, unused pension funds will also fall within the Inheritance Tax estate.

This creates a compounding effect:

  • 40% IHT applied first
  • Then income tax on the remaining balance at up to 45%
  • Combined impact: up to 67% of the pension value

For clients already over 75, this is not a future issue — it is a live planning risk today.

There is a structured, FCA-regulated solution that can:

  • Remove the pension from the taxable estate
  • Eliminate both IHT and income tax on death benefits
  • Provide certainty from the point of implementation — income tax eliminated from day one, IHT after two years

For clients under 75, pension funds remain outside the IHT estate until April 2027 — but early planning matters, particularly where Business Relief strategies require time to qualify. The two-year qualifying period starts from the date of transfer.

What This Guide Is

Aetas Wealth is an independent financial planning practice that helps UK financial advisers address the pension inheritance tax problem created by Finance Act 2026 (Royal Assent 20 March 2026).

The problem: From April 2027, unused pension funds enter the IHT estate. For clients over 75, IHT at 40% and income tax at up to 45% apply simultaneously — a combined effective rate of up to 67%. On a £500,000 pension, beneficiaries receive just £165,000.

The solution: The Flexible Pension Annuity (FPA) is a unit-linked pension annuity that eliminates income tax on death benefits from day one, and IHT after two years via Business Property Relief under s105(1)(bb) IHTA 1984. On the same £500,000 pension, beneficiaries receive £472,700.

This resource: For professional financial advisers only. Contains a live tax calculator, five client case studies, cost/benefit scenarios, the full legal and regulatory framework, and adviser insights. Not for client distribution.

67%
Maximum combined effective tax rate on pension death benefits for clients over 75 from April 2027
£0
Tax on the residual pension fund after 2 years with the Flexible Pension Annuity and Business Property Relief
100%
BPR claim success rate — every single claim past the 2-year mark has been accepted by HMRC
Peter Rose APFS
Peter Rose APFS · Chartered Financial Planner
50 years advising on complex pension arrangements · Aetas Wealth · Book a call →
Key Dates

The Timeline

Autumn 2024
Budget Announcement
Chancellor announces pension funds will enter the IHT estate from April 2027. Significant industry backlash follows.
20 March 2026
Finance Act 2026 — Royal Assent
The legislation is now law. There is no Parliamentary opportunity to reverse it before April 2027. It is confirmed.
April 2027
Double Tax Charge Takes Effect
IHT applies to all pension funds on death. Combined with income tax for over-75 clients: effective rate up to 67%.
Transfer date + 2 years
Full BPR Qualification
After 2 years in the FPA, the Preference Share qualifies for 100% BPR. IHT eliminated. Income tax was eliminated from day one.
The Solution

One solution eliminates both taxes

The Flexible Pension Annuity (FPA) is a unit-linked pension annuity that works like drawdown — but wraps that flexibility inside a structure that eliminates income tax on death from day one, and IHT after two years. FCA-regulated, FSCS protected (100%, no cap), transferred via Origo.

Stage 1 · Immediate

Income tax eliminated — from day one

When a client transfers their pension into the FPA, they purchase a Preference Share in a Gibraltar Protected Cell Company. On death, the residual Cell value passes via the Preference Share — free of income tax and CGT immediately. No 2-year wait. No conditions.

For a client over 75 with a £500k pension fund, this is an immediate saving of approximately £135,000–£225,000 in income tax on death — from the day of transfer.
Stage 2 · After 2 years

IHT eliminated — via Business Property Relief

The Preference Share is an unlisted share in a profit-making life assurance company — qualifying for 100% BPR under s105(1)(bb) IHTA 1984. After a 2-year holding period, IHT is eliminated on the first £2.5m (50% relief above that).

Over 250 HMRC death claims processed past the 2-year mark. Not one BPR claim has been refused.
Est. 2001
Over Two Decades of Operation
Established when compulsory annuity purchase was still law. Tested through multiple regulatory cycles.
FSCS Protected
100% · No Cap
All products are 'protected contracts of insurance' — the highest category of FSCS protection available.
ORIGO Platform
Straightforward Transfers
Origo is a secure system used by pension providers to transfer pensions and share information electronically, helping make the process faster and more efficient. The FPA is on Origo — meaning transfers are straightforward, paperless, and accepted from all major providers. In-specie transfers permitted. No need to liquidate existing mandates.
Gibraltar PCC
Ring-Fenced by Law
Each client's Cell is statutorily segregated. ~20% of UK motor insurance uses the same PCC structure (e.g. Admiral).

For professional adviser use only. Not for client distribution. Prepared by Aetas Wealth, a trading style of Insight Financial Associates Ltd, authorised and regulated by the FCA (No. 458421). All figures are illustrative. Individual advice required.

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