Financial planning in a new era: Navigating UK tax changes to IHT, CGT & pensions

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For context, this is my 20th year working as a financial planner, the last 12 and half of them spent here in the team at Armstrong Watson.

In my opinion, the current and planned changes in legislation are the most seismic and impactful of my working life.

I’d go as far as saying that every client that I act for and work with will be impacted by the legislation changes, by which I mean they will have to change their financial plan in order to achieve their objectives.

The ‘why’ of this situation is largely political, the government has made significant changes to a number of tax regimes with the aim of raising money to fund their manifesto promises.

Key UK tax changes you need to know

• Capital Gains Tax (CGT) – annual exemption reduced to £3,000 per annum
• Inheritance Tax – Agricultural Property Relief (APR) and Business Property Relief (BPR) significantly reduced from April 2026
• Inheritance Tax – Alternative Investment Market (AIM) shares relief significantly reduced from April 2026
• Inheritance Tax – unused Pensions to be included in estate values from 6th April 2027.

How these tax changes impact your financial planning

Whist the Capital Gains Tax change may seem like a minor amendment, the impact for private investors is likely to be more significant than it first appears.

For a decade or more the CGT rules have been relatively generous, a large annual exemption has seen many clients advised to hold investment in a ‘General Investment Account’ (GIA) which is usually in a ‘unit trust’ or ‘Open Ended Investment Company’ (OEIC) structure. The GIA is then used to fund the annual ISA allowance.

However, with a CGT exemption of only £3,000 per annum, this leaves very little room to manoeuvre. It may well be that moving money to an ISA is actually a trigger for a CGT bill, additionally the tax wrapper could have a serious impact on the investment decisions, for example, do you sell a fund for the right investment reasons or hold ‘the dud’ so not to create a tax liability?

Could an Onshore Investment Bond be right for you?

The distant cousin of the GIA is the ‘Onshore Investment Bond’ – in many ways this is the cousin that has been ostracised from the financial planning family for 10-15 years, but it lends itself to the current tax regime in a very attractive way.

The onshore bond with its basic rate tax credit and 5% deferred tax withdrawals could have a very important role to play in your reimagined financial plan.

Is my pension subject to Inheritance Tax?

Well, not quite yet! But the consultation is over, and this is the reality of life from 6th April 2027 onwards. On the second death (of a couple) any unused pension will form part of your estate for Inheritance Tax (IHT) purposes.

For the last 10 years, since pension freedoms, pensions have moved to the back of the queue when it comes to retirement income. Whilst not intended as a family trust, the IHT free status has driven the logic to leave them until last.

The new legislation will mean that there is no IHT benefit to not using your pension, it is ‘IHT neutral’ along with your ISAs and any other investments.

What can I do to mitigate these tax changes?

The importance of individual advice is paramount, but revisiting your financial plan is imperative.

There could be logic in releasing tax-free cash and gifting funds into a trust, starting the seven year clock with the aim of mitigating IHT and creating a legacy for children or grandchildren.

There may also be logic in turning on an income (guaranteed or flexible) up to the top of your basic rate (20%) income tax band. If this creates excess income, perhaps you can make gifts that are immediately outside of your estate.

Conclusion

The landscape is more complex than it has been for a long time, navigating this next period of time will require resilience, and in many cases, a redesign of your financial plan.

The content of this article is not individual advice, each set of circumstances and objectives will need a solution tailored, but it is designed to provoke thought and disturb the status quo.

Picking funds and discussing fund styles is largely the domain of fund managers. This is the time to engage your financial planner and challenge them to ensure you have peace of mind and to provide you with a secure financial future.