Date posted: 2nd Jun 2026
Guest Blog: By Daniel Benjamin, Director, Financial Planning at Evelyn Partners
A New (Financial) Year, a New You?
With pension and ISA deadlines, legislative changes, shrinking allowances, and last-minute conversations with accountants and financial advisers, the period leading up to a new financial year can be one of the most nerve-racking dates in the calendar.
But, as with every sunset, there is a sunrise. Now, almost two months into the new financial year, the landscape feels somewhat different from previous years.
For many, apprehension has carried over into the new tax year as household budgets are stretched, allowances are tightened and the Chancellor looks to balance the books.
Yet it is far from all doom and gloom. Even amid the changes affecting pensions, significant opportunities remain. Now more than ever, the focus should be on extracting greater efficiency from our finances.
The Change
Arguably one of the most significant pension reforms since the 2015 Pension Freedoms was announced in the Autumn Budget 2024. From 6 April 2027, unused defined contribution pensions are to form part of a deceased’s estate for inheritance tax (IHT) purposes.
Historically, pensions such as personal pensions and SIPPs were typically outside the estate, allowing unused funds to pass to beneficiaries without an inheritance tax charge. This led to many using their pensions as a method of passing wealth through the generations or actively contributing to pensions to shelter wealth from IHT. Under the proposed changes, the value of an unused pension is expected to be added to the estate and any value above available allowances — such as the nil‑rate band (NRB) and residence nil‑rate band (RNRB) — could be taxed at up to 40%.
At the same time, existing pension death‑benefit taxation rules are expected to remain unchanged. In summary:
- Where the pension holder dies before age 75, benefits are generally paid tax‑free.
- Where death occurs at age 75 or over, beneficiaries pay income tax at their marginal rate on lump sum death benefits or withdrawals.
For beneficiaries of those over age 75, the combination of inheritance tax at up to 40% and income tax of up to 45% could result in an effective marginal tax rate of up to 67%; with beneficiaries potentially only receiving as little 33p in the pound from a pension pot.
Still a Cornerstone of Financial Planning
We are still awaiting finer detail in relation to the change in legislation but the expectation is that pensions may no longer be a truly effective estate planning product.
Despite recent planned changes however, it is important not to lose sight of the core purpose of a pension: providing financial security in retirement. Even with the proposed IHT changes, pensions remain one of the most — if not the most — tax‑efficient vehicles for long‑term saving:
- Tax relief on personal contributions of up to 45%
- Growth within the pension free of income and capital gains tax
- Up to 25% of the pension usually available tax‑free at retirement, subject to a lifetime cap of £268,275
- No inheritance tax on transfers between spouses or civil partners, preserving efficiency for couples
With thoughtful and proactive planning, pensions can still play a central role in building wealth during working life and supporting sustainable income in retirement.
When it comes to IHT planning more broadly, there are alternative strategies that may be appropriate depending on your circumstances. Speaking with your financial adviser can help you explore the options available and ensure your arrangements remain aligned with both your goals and the evolving tax landscape.
Making Hay While the Sun Shines: Pension Contributions
Pension tax relief remains one of the most generous incentives available to UK savers, yet it is also expensive for the Exchequer. As pressure mounts on public finances, it would be no surprise if pension tax relief — particularly for higher earners — were to come under greater scrutiny in future Budgets. While there are currently no confirmed plans to change the system, history tells us that reliefs of this nature are often attractive targets for reform.
With this in mind, maximising pension contributions while the existing rules remain in place may prove to be a prudent strategy.
For business owners and company directors, employer contributions are particularly powerful, as they can be treated as a legitimate business expense and reduce corporation tax, often making them more efficient than personal contributions.
Bearing in mind too that taxation of dividends has recently increased – rates for basic rate taxpayers and higher rate taxpayers increasing by 2% to 10.75% and 35.75% respectively – extracting wealth from a business via pension contributions can be extremely valuable.
Of course, this should always be balanced against affordability, cash‑flow needs and wider financial objectives. However, for those with surplus income, or spare cash within a business front‑loading pension contributions or making use of unused annual allowance through carry forward could be an effective way to lock in generous tax benefits while they remain available.
Clive Owen LLP works alongside Evelyn Partners to ensure our clients receive the best possible financial advice. If you would like to speak with a member of our team about these financial planning services, contact us here and we would be happy to facilitate an introduction to Daniel and the wider Evelyn Partners’ team.
