The Budget introduces significant inheritance tax (IHT) changes that will impact financial advisers, platforms, wealth managers, and asset managers. Life insurers, however, may benefit most. Key IHT adjustments include:
• Limiting pensions as IHT avoidance tools, refocusing them as retirement income plans.
• Reducing IHT business relief on AIM shares and certain other assets to 50%, effectively imposing a 20% IHT rate.
These measures mark a shift in planning strategies built around pensions for wealth transfer. Advisers have long recommended clients preserve pensions due to their tax efficiency. Now, from 2027, pensions will become a less favourable inheritance vehicle, subject to both IHT and potentially income tax on beneficiaries.
In response, advisers may return to trust-based options like gift and loan plans, which were previously limited to clients with maxed-out pensions. This change will likely revive demand for life assurance bond-based schemes, benefitting UK life insurance companies and offshore bonds, and possibly increasing demand for protection policies to cover IHT on business assets now only 50% IHT-relieved.
The pension shift back toward income generation also presents new opportunities for annuity sales, appealing to older clients who now prefer security over bequeathing taxable assets. These developments are expected to reshape financial strategies, with impacts extending to platforms and asset managers. Our UK Financial Advisers research will continue to monitor these trends through 2025 and beyond.
We recently published UK Financial Advisers: Market Overview report. For more information, please get in touch.