Author: Stef Heslop
Director and Chartered Accountant
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Published: August 2025
Since Ms Reeves delivered her historic budget in Autumn 2024, financial planners, accountants and solicitors have been waiting for the consultation papers to be released with bated breath. They were hoping that after review, like the winter fuel allowance, there will be an ‘U turn’ on the double taxation (income tax and inheritance tax) on unused pension schemes. We have previously blogged on this since the announcement: Discussions post-Budget; is it time now to review your financial plans? – MM Wealth
From 6 April 2027, unused pension pots on death are likely to be included in the deceased’s estate for Inheritance Tax (IHT) purposes. Further to this, the government have gone on to state that beneficiaries inheriting post-75 may still face income tax on withdrawals.
Unfortunately, on 21 July 2025, the government published its draft clauses for the next Finance bill known as L-Day which included inheritance tax on pension pots and death benefits: Inheritance Tax on unused pension funds and death benefits – GOV.UK. It is clear the Treasury are very much proceeding with this.
The profession has until 15 September 2025 to provide comments to the consultation papers with many penning their thoughts to the government.
Since the announcement on 30 October 2024, the team have been working closely with clients who are likely to be impacted by this change, as currently, unused pension pots are generally outside their estates for IHT purposes, making them a valuable estate planning tool. See our client story: How we have helped clients since the October 2024 budget – MM Wealth
What we are seeing is that this new legislation is uniting many of our professional connections. Writing in Money Marketing, Andy Bell CBE has been publicly challenging the proposed change: Andy Bell: The 67% tax car crash nobody ordered | Money Marketing, stating “the Labour government is hellbent on bulldozing through this change”.
Nathan Bridgeman from SeaBridge SSAS is leading a petition that was accepted by the House of Commons over the weekend. The petition needs 10,000 signatures for a government response or, if over 100,000 signatures, it would be considered for debate in parliament: Stop the double tax (IHT & Income Tax) of pension funds & death benefits – Petitions. At time of writing, it has nearly 3,500 signatures in its first week, demonstrating the concern the profession has.
It’s clear that the government remain unyielding in pursuing this change with the reported £51bn deficit (according to The National Institute of Economic and Social Research (NIESR)) that Rachel Reeves is trying to fill.
The concern at MM Wealth is that this potential change is not getting the airtime it requires and as a result, many will be caught out by this.
Adrian Atkinson, Managing Director of MM Wealth comments “It’s not just the double taxation, it’s how it impacts with wider planning. I have seen a number of new clients in the last few months, and they had no real understanding of what it meant.”
Turning attention to the 2025 Autumn statement, Rachel Reeves has to give six weeks’ notice to announce a budget. The expectation is once parliament come back from their summer recess; this will be high on the agenda.
It has been reported through the media that the Treasury has plans to tighten rules around gifting for Inheritance Tax. In addition, it is expected that the Chancellor is likely to break her pledge not to raise taxes on working people.
What is clear is that there are still a lot of the public unaware of the impact this is going to have on passing on their wealth to their loved ones. The focus of financial planners, accountants and solicitors is to ensure that clients have reviewed their estate planning, wills and the impact of inheritance tax under the new rules.
If you would like to talk to one of our Chartered Financial Planners, please contact us on 01223 233331 or email info@mmwealth.co.uk.
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Disclaimer
Opinions constitute our judgment as of this date and are subject to change without warning. This article is for general information only and does not constitute advice. All contents are based on our understanding of current taxation and legislation, which is subject to change.
The information in this article is not intended as an offer or solicitation to buy or sell securities or any other investment, nor does it constitute a personal recommendation.
