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Expert Tips to Help Savers Avoid Rachel Reeves’ IHT Raid on Pensions

ended 02. August 2025

With pensions set to fall into the Inheritance Tax net from April 2027, families could face significant tax bills on death — but with smart planning, there are ways to mitigate the impact. Here are five expert tips from financial planner Scott Gallacher of Rowley Turton to help individuals get ahead of the changes:

1. Don’t Be Afraid to Spend and Enjoy Your Money
Every £1 spent on yourself can save your family 40p in IHT. “I give clients ‘40% off’ stickers to illustrate the IHT saving they make by spending,” says Gallacher. It’s a reminder that spending money in retirement isn’t just lifestyle — it’s strategy.

2. Consider an Annuity Instead of Drawdown
Drawdown funds may now face 40% IHT on death, making guaranteed annuity income more attractive — particularly for those caught in the 60% income tax trap between £2m and £2.7m. Turning pension wealth into income removes the IHT risk while securing guaranteed lifetime income.

3. Use Non-Pension Assets Wisely
Look beyond pensions: consider gifting assets, using trusts, or investing in Business Relief (BR)-qualifying schemes. Strategic use of these tools can shift wealth out of the estate while maintaining flexibility or control.

4. Gift Your Tax-Free Cash (TFC)
Consider drawing your pension TFC and gifting it — possibly via a discounted gift trust, which offers income and IHT advantages. This is especially useful for those not needing immediate access to capital.

5. Use Drawdown-and-Gift Strategy to Help the Next Generation
Use income from drawdown to make regular gifts out of surplus income, which can be IHT-exempt from day one. Better yet, use that money to fund pensions for children or grandchildren — effectively creating an indirect pension transfer across generations.

Got your own tip or strategy to avoid the coming pension IHT raid? We’d love to hear it. Send us your thoughts now and we’ll share the best with national media outlets.

3 responses from the Newspage community

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Editor
Samuel Mather-Holgate
Managing Director & IFA at Mather and Murray Financial
It is difficult to get money out of your pension to plan for IHT because, apart from the tax free cash, everything is taxed as income. You need to start thinking about your house and other assets. Careful planning with a lifetime mortgage or gift and loan trusts could see you remove a significant amount of capital from your estate. You might want to consider if an annuity is right- lots of people can get an enhancement on normal rates with mild health conditions like high blood pressure or raised cholesterol so it’s important to speak to an expert adviser.
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Editor
Tony Redondo
Founder at Cosmos Currency Exchange
My Accountant always suggests you use your £3,000 annual IHT gift exemption (plus any unused allowance from the previous year, up to £6,000) to move money out of your estate now. Combine this with small gift exemptions (£250 per person annually) to spread wealth to multiple beneficiaries. Starting early compounds, the IHT savings, as gifts, become fully exempt after seven years (or immediately if from surplus income). This is a low-risk, straightforward way to reduce your taxable estate without complex trusts or schemes.
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Philip Dragoumis
Director and Owner at Thera Wealth Management
It's really not rocket science. Draw your pension down, spend it or gift it and aim to die with zero assets to your name if you can. Enjoy your life and give freely with a warm hand not a cold one so you can see your children enjoy theirs while you are still alive. Everything is on a 40% discount. Inheritance tax has always been and hopefully will continue to be a voluntary tax.