The Government’s Autumn Budget 2024 has triggered a pivotal rethink in the world of financial advice. With the announcement that unused pension pots will fall within the scope of Inheritance Tax (IHT) from April 2027, financial planners are being called upon to revise long-standing strategies around retirement and estate planning.

For years, pensions have served as a highly effective IHT shelter. Advisers have rightly encouraged clients, particularly high-net-worth individuals, to continue funding their pensions beyond their expected retirement income needs. The rationale was clear, as pension pots could grow and be passed on to beneficiaries free of IHT. This strategy encouraged the use of other, more IHT-exposed assets (such as Buy-to-Let properties or investment dividends) for income, preserving the pension as a legacy vehicle. But this once-prudent planning now needs reassessing.

With the new rules set to bring pension pots into the IHT net, from 6 April 2027, what was once a highly tax-efficient asset may now become a liability. Advisers must now reassess the role of pensions in estate planning, not just in terms of income strategy, but as part of the broader tax exposure picture.

Take the case of a 65-year-old with a £1 million pension and another £1 million in BTL property. Today, their pension is protected from IHT, while their property portfolio carries a £400,000 IHT liability. However, from April 2027, their pension will also become taxable, doubling their estate’s exposure to IHT if no action is taken. (For the sake of this example, we are not going into complicated calculations including NRB and RNRB, etc.)

To counter this, an adviser may recommend liquidating the BTL assets, triggering a manageable £48,000 CGT bill on a £200,000 gain. The proceeds can then be redirected into £200,000 of Enterprise Investment Scheme (EIS) investments, offering full CGT deferral and £60,000 in income tax relief across two tax years, and £800,000 into Business Relief (BR)-qualifying investments, which become IHT-exempt after just two years. Meanwhile, they can draw an income from their pension pot to replace the lost rental income, ensuring liquidity while also significantly reducing the future IHT burden.

This new policy direction has wide-reaching implications for financial planning. IFAs must now evolve their strategies in three key areas.

Reassess Pension Accumulation and Legacy Strategy. For years, the pension has been positioned as the final asset to draw upon, left intact to pass to the next generation. Now, advisers must consider whether continued pension contributions are appropriate for clients who have already met their retirement income needs. In some cases, it may make sense to cap pension funding or even begin strategic drawdown earlier than previously advised. Advisers should evaluate each client’s long-term cash flow needs and estate objectives and determine whether pension assets might be better reallocated into vehicles that retain IHT protection.

Act Early on IHT Planning with a Two-Year Horizon. The two-year qualification period for Business Relief investments means timing is now more important than ever. Waiting until April 2027 to act could result in missed opportunities to mitigate IHT. Advisers should begin conversations immediately with clients likely to be impacted by the pension rule change, particularly those with significant undrawn pension assets and taxable estates. By acting now, clients can complete the two-year BR holding period before the new rules bite, thereby shielding those assets from IHT. But don’t forget that from 6 April 2026, individuals will be subject to a £1m Business Relief allowance, with BR-qualifying assets above this threshold subject to IHT at 20%, and all BR-qualifying AIM stocks will be charged IHT at a rate of 20%.

Broaden the Use of Tax-Efficient Investment Vehicles. EIS and BR-qualifying investments have long been seen as niche options. But under the new rules, these vehicles take on a far more central role in estate planning, subject to investor appropriateness and risk profile. Their combination of income tax relief, CGT deferral, and IHT exemption makes them uniquely powerful tools in a well-diversified, tax-aware portfolio. Advisers need to be confident in communicating these benefits to clients, while helping them understand how these investments can be structured to complement, rather than replace, more traditional holdings.

The Autumn Budget didn’t just adjust tax thresholds; it fundamentally changed the planning assumptions that many advisers and clients have worked with for years. By reassessing pension strategies, acting early on BR planning, and embracing a wider toolkit of tax-efficient vehicles, advisers can help their clients stay ahead of the curve. This is no longer about incremental optimisation, it’s about proactive portfolio transformation in a shifting tax environment. Those who act now will ensure their clients are resilient and well-positioned for the future.

Andrew Aldridge is Chief Operating Officer at Deepbridge Capital