UK government will change how inheritance tax applies to pensions
From 6 April 2027, the UK government will change how inheritance tax (IHT) applies to pensions. Under the new rules, most unused defined contribution pension funds will be included in a person’s estate on death, making them potentially liable to IHT for the first time.
This marks a major shift in estate planning and will affect thousands of families each year, particularly those with larger pension pots.
Current Position: Pensions and IHT
At present, defined contribution pensions (such as personal pensions and SIPPs) are generally not counted as part of the estate for IHT purposes. If someone dies before age 75, their pension savings can usually be passed to beneficiaries completely tax-free. If they die after 75, the funds remain outside the IHT net, although income tax applies when the beneficiary draws money from the pot.
For many, this has made pensions a highly efficient way to pass on wealth.
What Will Change in 2027?
Starting in April 2027, most unused pension funds will be treated as part of the deceased’s estate. This means that, if the estate exceeds the IHT threshold (currently £325,000 plus any residence allowance), the pension pot may be taxed at up to 40%.
Beneficiaries could still face income tax on any money they withdraw, meaning some inherited pension savings may now be taxed twice… first under IHT, then under income tax rules.
Who Will Be Affected?
This change is likely to affect wealthier households or those who have built up significant pension savings without drawing on them. Government figures suggest more than 10,000 estates each year will now face IHT solely due to pension wealth, with thousands more seeing higher tax bills overall.
Added Complexity for Executors
Under the new rules, responsibility for reporting pensions shifts from pension providers to executors. Personal representatives of the estate will need to locate all relevant pensions, obtain valuations, and report them to HMRC, adding further complexity to an already stressful process.
Penalties may apply if these details aren’t provided within the required time frame, even if the estate isn’t large enough to trigger a tax bill.
Planning Considerations
With the changes now confirmed, individuals should review their estate plans and pension strategies. Some may wish to draw down more of their pension in retirement, rather than leaving it untouched. Others may consider lifetime gifting of other assets, using trusts, or insurance policies to help cover future IHT costs.
It’s also essential to update nomination forms and keep records of all pension schemes to help executors handle future reporting requirements.
In Summary
The government’s decision to include pensions within IHT from April 2027 is a significant development. Pensions will no longer be entirely tax-sheltered at death, and this may affect how people save, spend, and plan for the next generation.
Those with substantial pension savings should act now to ensure they make the most of existing reliefs and avoid surprises later. Professional advice can help identify practical options to reduce potential tax exposure and ease the burden on future beneficiaries.
Next Steps
If you are affected by the new rules or wish to explore your planning options, please contact us at ETC Tax for tailored guidance.
Think of it this way: if you bought something like a second property, some shares, or even cryptocurrency and later sold it for more than you paid, the profit you made (the “gain”) is what HMRC wants to know about, and they want to tax it too.
It doesn’t matter whether you pocketed the cash or reinvested it. If there was a gain, there may be a tax bill, and depending on what you sold, when you sold it, and how much you made, the rules can get tricky fast.
The deadline you really don’t want to miss
If you sell a UK residential property and CGT is due, you have just 60 days from completion to report it and pay up.
If you miss that window, HMRC will start charging late-filing penalties, plus interest.
For other types of gains, like shares or crypto, you’ll usually report them through your Self-Assessment return.
The most common errors we see
You’d be surprised how often people get tripped up. Some think gifting a property to their children means no CGT (not true). Others assume crypto profits are too complicated to track (HMRC disagrees). And many are shocked to learn that just selling a holiday home overseas could trigger a reportable gain, even if they didn’t make that much money from it.
Then there’s the maths. Working out your gain isn’t always as simple as sale price minus purchase price. What about refurbishment costs? Legal fees? Inherited values? Different types of relief? The rules are full of “ifs,” “buts,” and “maybes” and that’s where we come in.
So, how can we help?
In short: we take the stress off you. You tell us what you sold, we look at the numbers, make sure you’re claiming everything you’re entitled to, and file the report accurately and on time.
No panic. No surprises. No “uh-oh” moments further down the line.
Whether you’ve sold a rental property, hit the jackpot on crypto, or you’re just not sure whether CGT applies to your situation we’ll talk it through with you, ,making the complex simple’.
Next Steps
The best time to speak ETC about Capital Gains Tax is before you sell. But if the clock is already ticking on a recent sale, don’t panic, as we can help you get it sorted quickly and correctly. Get in touch and we will help you out!
If your income exceeds £200,000, or your assets total more than £2 million, you’re likely to be on HMRC’s radar.
It’s a position many successful individuals find themselves in, but with that success comes scrutiny.
There’s an entire department within HMRC dedicated to monitoring those ‘high-net-worth’ individuals: the HMRC Wealthy Team
The Role of HMRC Wealthy Team
Their role is to ensure that the UK’s wealthiest taxpayers are fully compliant and to recover any tax that might have been underpaid, whether due to oversight, complexity, or error.
So, while it might feel like your tax return is just another form to complete each year, HMRC may view it as a key piece of a much bigger financial picture.
Wealth Means Complexity, and Complexity Increases Risk
For wealthier individuals, financial affairs often aren’t simple. You may have income from multiple sources – perhaps a business, dividends, interest, rental property, and investments. You might have capital gains to declare or residency issues to navigate. This, and adding offshore interests or cryptoassets into the mix, increases the risk of something slipping through the cracks.
This is why the Wealthy Team exists. Statistically, the more moving parts there are in someone’s finances, the more likely it is that an error or omission will occur. And the more wealth at stake, the higher the tax HMRC stands to gain.
How does HMRC Wealthy Team know?
The Wealthy Team doesn’t work in the dark. They’re equipped with a powerful, AI-driven data system known as Connect. This tool analyses and cross-references vast amounts of information – from bank accounts, credit card activity and Land Registry data to overseas financial details, trust arrangements, and even travel records.
Thanks to international data-sharing agreements, HMRC also has visibility over income and assets held offshore. That includes rental income from overseas property, shares in foreign companies, or funds held in international trusts. Cryptoassets have also become a growing area of focus – and often an area where taxpayer’s misstep.
The point is this: HMRC can see more than ever before, and they’re using that visibility to act with increasing precision.
How do the HMRC Wealthy Team choose who to investigate?
There’s a common misconception that tax enquiries are a roll of the dice, that HMRC sends letters at random. That may have been the case years ago, but today, most enquiries are the result of highly targeted data analysis. If the numbers in your tax return don’t line up with the lifestyle you’re visibly living or the transactions you’re making, this could be a trigger for that brown envelope in the post.
And when an enquiry does land, it’s rarely straightforward. Even a relatively minor technical error can trigger months of back-and-forth with HMRC. According to the National Audit Office, for higher-value cases the average enquiry during 2023-24 lasted around 40 months! That’s more than three years of uncertainty, scrutiny, and stress.
The Most Important Advice? Put yourself in the strongest position from the get-go
Getting your tax return right the first time is the best piece of advice we can give, and engaging with a tax professional for assistance is crucial in ensuring this.
One of the most surprising statistics is that 28% of wealthy individuals are still not represented by a tax agent, so they are managing their affairs without professional support, despite the increasing complexity of today’s tax landscape.
Even among those who do have an adviser, it’s important to recognise that not all accountants and advisers specialise in the nuanced issues that come with significant wealth, such as offshore assets, crypto, or residency matters. In these cases, working with a firm that has specialist experience in your area can make all the difference.
And given the risks involved (including financial penalties, potential reputational damage, and years of investigation), this is one area where we believe expert advice is essential.
How ETC Tax Can Help
At ETC Tax, we specialise in helping high-net-worth individuals manage the compliance burden that comes with significant wealth. We regularly prepare complex tax returns for individuals with high-value or technical affairs, ensure their affairs are accurate, complete and defensible, with professional advice to back it up.
Having your return prepared by a specialist from the outset can be the difference between a quiet year and years of questions from HMRC.
We regularly work with clients who have:
Cryptoassets
Complex UK or international residency positions
Offshore assets or trusts
Property portfolios and capital gains
Multiple income streams and investment structures
If any of that reads true to you, now is the time to make sure everything is in order.
What if I have received an enquiry from HMRC Wealthy Team?
If that brown envelope does land on your doorstep, don’t panic, but do take it seriously.
For individuals with complex financial affairs, HMRC enquiries are not ‘DIY’ jobs. They require a deep understanding of tax legislation, knowledge of how HMRC operates, and the right negotiation strategy to manage the process effectively.
Next Steps
The best way forward? Get professional advice and do it as early as possible. We are happy to help at ETC Tax.
If you’d like to discuss your circumstances or simply ensure you’re in the best possible position before HMRC comes knocking, please do not hesitate to get in touch.
When it comes to planning for the future, one question we hear time and again is:
“Should I put my assets into a trust?”
It’s a great question and a surprisingly common one, especially as families become more aware of inheritance tax (IHT) and the need to protect their wealth for future generations. Trusts have long been a feature of estate planning for the wealthy, but they’re no longer just being used by the ‘super rich’. Today, they’re being used by families of all sizes who want to manage their assets more thoughtfully and more tax-efficiently.
But as with most things in tax, it’s not a simple yes or no.
What exactly is a trust and why do people use them?
Imagine you’ve worked hard to build up a nest egg, perhaps a family home, some savings, maybe a portfolio of investments. Now imagine you want to pass that wealth on, in your own time. While there are many options, a trust can be a popular one.
A trust is like a protective wrapper around your assets which allows you to:
Place specified assets into trust;
Appoint trustees to look after those assets;
Decide who should ultimately benefit from those assets (whether its your children, grandchildren or someone else entirely)
In doing so, it creates a structure which separates beneficial and legal ownership, giving you control over how and when your wealth is passed on.
On top of this, trusts can also help to reduce inheritance tax. For example, certain types of trusts allow you to move assets out of your estate, meaning they’re no longer counted when HMRC calculates the IHT bill on your death. If you survive for seven years after the transfer, those assets may fall completely outside your estate, potentially saving your family thousands (or more) in tax.
Many people also use them to protect young or vulnerable beneficiaries, particularly where an outright inheritance might not be wise. Others use them to keep assets in the family, especially in situations involving divorce, remarriage, or business risk. Some simply want peace of mind, knowing their legacy will be handled responsibly, even after they’re gone.
So, is it the right move?
It depends and this is where things get interesting.
Transferring assets into a trust can be incredibly valuable, but it isn’t always straightforward. For one thing, the transfer itself can come with tax consequences. You might trigger an immediate charge to inheritance tax if you put too much into a trust at once. There may be capital gains tax implications too, if appropriate reliefs aren’t considered.
Additionally, a trust should never be set up for your own benefit, as this can have adverse tax consequences.
Then there’s the trust itself. It’s not a ‘set it up and forget about it’ arrangement. Trustees have legal duties, tax reporting obligations, and the responsibility of managing the trust’s assets in line with your wishes. Certain trusts also face their own ongoing tax regime including charges every ten years, and when assets are taken out.
That’s not to say any of this is a deal-breaker. Far from it. But it does mean you need to go into it with your eyes open, and ideally, with professional guidance.
The right strategy starts with the right advice
Trusts are not about hiding money or avoiding tax. They’re about planning sensibly, thinking ahead, structuring your wealth in a way that reflects your values, and making sure your family is looked after when you’re no longer here to do it yourself.
If you’re worried about inheritance tax, concerned about passing money to the next generation too soon, or simply want more control over what happens to your assets, then a trust might be worth exploring. But it’s not the kind of thing you want to Google your way through.
Next Steps
At ETC, we help clients understand whether a trust is the right fit for their estate and if it is, we make sure it’s set up properly, tax-efficiently, and with a clear long-term plan in place.
Every family is different. Every estate is different. And every trust should be tailored to match.
If you want to discuss whether a trust is right for you, do not hesitate to get in touch.
Maybe you’ve been offered a job overseas, maybe you’re dreaming of sunnier skies and relaxing mornings, or maybe it’s just time for a change.
Whatever your reason, going to live in another country is exciting, but before you get too carried away with house-hunting, you do need to consider the tax position.
At ETC, we understand that tax isn’t exactly the ‘fun’ part of moving abroad, but ensuring you get it right now could save you a lot of stress (and potentially a lot of money) further down the line.
Here’s the bit most people miss!
A lot of people assume that once they move overseas, they’re no longer UK taxpayers. Easy, right? You live somewhere else, so you stop paying tax in the UK.
Unfortunately, that’s not exactly how it works.
Whether or not you still owe UK tax depends on something called the Statutory Residence Test. This test looks at all sorts of things, how many days you spend in the UK, where you live, where you work, and even whether you’ve got close family here. And sometimes, you can still be classed as a UK tax resident even when you think you’ve left for good.
In other words, it’s not enough to just get on a plane and start a new life somewhere else. You need to make sure HMRC agrees you have actually left.
It’s not just about where you live, it’s about your money too
Leaving the UK doesn’t mean you leave your financial life behind. You might have a rental property here, a business, some investments, or a pension. All of these things can continue creating tax obligations even while you’re sipping cocktails overseas.
In some cases, the tax treatment of your income changes the moment you become non-resident. In others, you might still be on the hook for UK tax even if you’re paying tax in your new country too. That’s where double tax treaties can help but only if you understand how to use them properly.
And what about capital gains? Again, you need to consider where the asset is situated, which isn’t always clear cut. Also, if the move abroad is only temporary one, you could find yourself in a tricky CGT position if you do return to the UK.
This is without mentioning the potential taxes that may apply in the other jurisdiction. That’s why it’s so important to plan your move before you go, not after the fact.
The timing really matters
Here’s the truth, most of the best tax planning opportunities happen before you move.
You might be able to sell assets while you’re still UK resident. You might want to restructure ownership of a business or property. You might need to think about gifts, trusts, or moving money across borders.
But once you’ve left? Many of those doors close.
And it’s not just about income and gains. Leaving the UK affects things like National Insurance contributions, state pensions, and inheritance tax too.
So, what help do you actually need?
This is where good advice makes all the difference. You don’t need a suitcase full of tax textbooks, you just need someone who can help you work out what your move means for your tax position, and how to structure things in a way that works for your new life.
That might mean making sure you clearly break UK residency. It might mean managing income across borders or making sure you don’t end up paying tax twice.
Next Steps
At ETC Tax, we work with clients at every stage of their international journey whether you’re in the early dreaming phase or already planning your goodbye party. We’ll walk you through the key decisions, flag the potential traps, and help you get everything lined up, so your big move goes as smoothly as possible.
If you are considering a potential move, feel free to get in touch today.
Preparing for the Unpredictable with Crypto and Inheritance Tax
They say only two things in life are certain: death and taxes. But when it comes to cryptoassets, certainty is in short supply, particularly over the long term. The value of your digital holdings in 30 years could triple, or be close to nothing (who knows!).
One more certain thing: if you’re a UK-domiciled individual, your cryptoassets could be subject to Inheritance Tax (IHT) on your death.
So, if you could take steps today to protect that value (whatever it may be in future) wouldn’t you want to?
The Basics
Inheritance Tax is a tax on the estate (property, money, and possessions) of someone who has died. In the UK, the standard rate is 40%, applied to the value of the estate above the nil-rate band, which is currently £325,000.
Cryptoassets, for legal and tax purposes, are treated as personal property. This means they form part of your estate and are therefore assessable for IHT purposes. They can also be held within a trust.
Practical Challenges
Valuation
Given the high volatility of cryptoassets, it is crucial to obtain an accurate valuation of crypto holdings as at the date of death. This is easier said than done and may require retrospective valuation evidence or professional assistance to ensure accuracy.
Access
While IHT applies based on the value of the estate, access to that crypto presents a unique problem.
Unlike traditional financial assets (e.g., bank accounts, investments, or property), cryptocurrencies are stored in digital wallets, which can only be accessed using private keys, passwords, seed phrases, or login credentials.
Without these details, your Executors will be unable to access the assets. This makes proper planning and secure transmission of this information essential when incorporating any gift of cryptoassets in your will.
Lost Crypto
We have seen first-hand a situation where a client’s relative passed away holding a substantial crypto portfolio. Unfortunately, with no private key or access details left behind, the crypto could not be accessed and was ‘lost’ forever.
In that case, despite the assets being inaccessible, without applying reliefs they were still technically liable for IHT on their value at the date of death. So, does this mean you have a hefty IHT bill without the funds to pay it? That doesn’t seem fair to us.
There is a provision which considers changes in the value of the estate’s assets caused by death (e.g., if access is lost due to death) that can be taken into account. Therefore, if crypto becomes irrecoverable because of death, there may be an argument that the fall in value should be treated as if it occurred before death, reducing the tax burden. However, this is a nuanced and evolving area, HMRC guidance does not give a view on this and it is yet to be tested in the courts.
Planning Ahead
With the above challenges in mind, it’s important to plan ahead. Despite the complications, the core principles of estate planning still apply.
However, a balance needs to be struck between planning to reduce IHT, providing clear access instructions in the event of your death, and maintaining the security of those assets during your lifetime (and post-death).
Examples of IHT Planning
Gifting: Gifting cryptocurrency during your lifetime can reduce your estate’s value, and if you survive seven years, the gift may be fully exempt from IHT.
Spousal Transfers: Transferring crypto to a spouse or civil partner is IHT-exempt and helps defer tax until the surviving partner’s death.
Life Insurance Policies: A life insurance policy written in trust can be used to cover the IHT liability arising from crypto holdings.
Use of Trusts: Placing cryptoassets into discretionary trusts can be a useful tool for passing on the assets securely and removing them from your estate for IHT purposes.
Use of Family Investment Companies (FICs): Holding crypto in an FIC may allow control while transferring value to the next generation in a tax efficient way.
Other Practical Steps
Keeping a clear inventory – What assets do you own? On which platforms or wallets are they held? Are they staked or part of a liquidity pool?
Secure but separate storage of sensitive data – Avoid listing private keys in your will. Instead, reference a securely stored, encrypted inventory, and review this data regularly.
Security planning – Use multi-signature wallets, trusted family members as co-signers, or “Dead man’s switch” mechanisms.
Use a solicitor – Ensure your will makes express reference to your cryptoassets and clearly sets out how they are to be passed on, and to whom.
A Word on Mindset
Cryptoassets should be treated like any other estate asset. But due to the nature of the technology, and the mindset of many crypto enthusiasts, planning can be more complicated than for traditional holdings.
Many holders pride themselves on autonomy and privacy. But without practical estate planning, that same autonomy could result in family members being left with no access to the cryptoassets.
Conclusion
Crypto is volatile, complex, and often misunderstood. But that doesn’t mean it can be ignored for inheritance planning purposes. On the contrary, it makes planning all the more important, not only to preserve value but also to ensure those precious assets land safely in the hands of your loved ones.
If you or your clients hold cryptoassets, there is no time like the present to take stock, plan sensibly, and put the necessary safeguards in place. The earlier you plan, the better. That way, the value – whatever it may be in future – has the best chance of making it into the hands of those you care about, and not just HMRC.
Next Steps
If you would like tailored advice on cryptoassets and inheritance tax planning, please get in touch with the team at ETC Tax and we’d be happy to help.
Head over to our crypto section on our website to see how we can support you when dealing with our crypto.
