5 Strategies to Reduce Your Pension's IHT Exposure Before April 2027

With the April 2027 deadline for pension Inheritance Tax changes now firmly on the horizon, many people are asking the same question: what can I actually do about it?

The honest answer is that it depends on your circumstances. But there are several well-established strategies that are worth exploring with an independent financial adviser — and the sooner you start, the more options you have.

1. Review your drawdown strategy

One of the simplest ways to reduce the pension pot exposed to IHT is to spend from it during your lifetime — but in a tax-efficient way.

Currently, many people draw on ISAs, savings, and other assets first, leaving their pension untouched as long as possible. Under the new rules, this approach may no longer make sense. A structured drawdown strategy — one that balances income tax efficiency with IHT planning — could make a meaningful difference to what your family ultimately receives.

2. Update your pension nominations

Your pension does not automatically form part of your estate — it is paid at the discretion of the pension trustees, guided by your expression of wishes. Keeping your nomination of beneficiaries up to date is essential, particularly if your family circumstances have changed.

Under the new rules, the trustees will also need to account for IHT before paying out. Making sure your nominations are current and clearly documented is a straightforward step that costs nothing.

3. Explore trust arrangements

Certain trust structures can help manage how pension death benefits are paid, potentially reducing the IHT exposure for your beneficiaries. This is a complex area — the right structure depends on your pension type, your estate, and your family situation — but it is worth exploring with a qualified adviser.

Trust arrangements take time to set up properly. This is not something to leave until the last few months before April 2027.

4. Use gifting allowances

Reducing the overall value of your estate through gifting is one of the oldest IHT planning tools available — and it remains effective.

Each individual has an annual gifting exemption of £3,000. Larger gifts can also be made as potentially exempt transfers (PETs), which fall outside your estate after seven years. If you have assets you do not need for your own retirement income, a structured gifting plan — started now — can make a significant difference over time.

5. Life cover written in trust

If your estate is likely to face an IHT liability that cannot be fully mitigated through other means, a whole-of-life policy written in trust can provide a lump sum to cover the bill. This protects your beneficiaries from having to sell assets — including property — to meet the tax charge.

The policy sits outside your estate (because it is held in trust), so the payout is not itself subject to IHT. Premiums depend on your age and health, so the earlier you put this in place, the more cost-effective it tends to be.

The right approach depends on your situation

None of these strategies is right for everyone. The best outcome comes from looking at your pension, your other assets, your income needs, and your family situation together — and building a plan that addresses all of them.

What is clear is that the window to act is open now, and it will not stay open indefinitely. Some of these strategies — particularly trust arrangements and gifting plans — need time to be properly structured and to take effect.

SBC Financial is authorised and regulated by the Financial Conduct Authority (FCA ref: 997666). The value of investments can fall as well as rise. Tax treatment depends on individual circumstances and may be subject to change. This article is for information purposes only and does not constitute personal financial advice.