Equity Release and Inheritance Tax: What the 2027 Pension Reforms Could Mean for Your Clients

As the government continues its focus on reforming inheritance tax (IHT), a significant change is on the horizon, one that may reshape how financial advisers and wealth managers support clients in planning their estates. With new legislation proposed to bring certain unused pensions and pension death benefits into the scope of IHT from April 2027, it’s a good time to consider how this may influence the use of equity release within estate planning strategies.

Pension Reforms and Inheritance Tax: What’s Changing in 2027?

Under the current rules, most defined contribution pensions fall outside the IHT net when passed on as death benefits, especially if the pension holder dies before age 75. This has historically made pensions an attractive tool for wealth preservation across generations.

However, in July 2025, the government published draft legislation proposing that from 6 April 2027, unused pension funds (including those held in drawdown and uncrystallised pots) may be included in the deceased’s estate for IHT purposes. While not yet finalised, this move could have major implications for clients with significant pension assets.

How the 2027 Changes Could Impact Clients’ Inheritance Tax Exposure

Should the legislation be enacted in its current form, many estates that previously fell below the IHT threshold could now exceed it, potentially triggering a 40% tax charge on pension assets passed to beneficiaries. This is particularly relevant for clients who:

• Have large pension pots and property wealth.
• Have taken minimal or no drawdown income.
• Were relying on pensions as a tax-efficient inheritance vehicle.

The result? A possible shift in financial priorities – from preserving pension wealth for heirs to actively managing the estate’s IHT exposure through other strategies.

What Role Could Equity Release Play in IHT Planning

For some clients, equity release may offer a way to address this new IHT exposure, particularly where their property makes up a significant portion of their estate. By unlocking tax-free cash from their home, clients may choose to:

• Gift money to loved ones during their lifetime (potentially benefitting from the seven-year IHT exemption rule).
• Reduce the value of their taxable estate, thereby mitigating the future IHT burden.
• Supplement retirement income, reducing reliance on pensions and drawing them down more strategically.

Of course, equity release is not a universal solution. It must be considered in the context of suitability, long-term costs, client goals, and regulatory advice standards.

Why Financial Advisers Should Act Now on Pension IHT Reforms

As the market responds to the upcoming changes, advisers have a key role to play in helping clients reassess their estate planning options. Equity release may not have been a priority for some clients before, but this legislative shift could bring it back into focus.
If you’re not a specialist in equity release, that doesn’t mean your clients can’t benefit from these conversations. Partnering with a referral service like Key Partnerships allows you to:

• Access market-leading expertise in later life lending.
• Refer clients confidently, knowing they’ll receive tailored, FCA-regulated advice.
• Strengthen your role as a holistic planner without stepping outside your regulatory permissions.

Get Support from Key Partnerships

If you’re supporting clients who may be affected by these changes, Key Partnerships is here to help. Our expert advisers can work alongside you to explore whether equity release fits within your clients’ broader financial plans.

Contact our team today to discuss how we can support your business and help your clients make informed, compliant decisions around equity release.