The Government’s recent tax reforms to address the public finances have created a more complex environment, requiring advisers and their clients to re-evaluate their wealth planning strategies.

Key changes including higher capital gains tax (CGT) and unused pensions now falling within inheritance tax calculations highlight the growing need for a diverse range of tax wrappers and proactive management of allowances across income tax, CGT, and inheritance tax (IHT).

A changing tax landscape

The October Optimism Index, a survey amongst 1,500 consumers conducted by Trajectory, revealed mixed reactions to the Budget. While there was strong support for measures like higher taxes on non-domiciled individuals (+36% for) and VAT on private school fees (+26% for), not all changes were welcomed. The inclusion of unused pensions in inheritance tax (IHT) calculations, for example, faced net disapproval (-5% against).

The inclusion of unused DC pensions in estates from April 2027 is particularly significant, as pensions of-late have been valued as a tax-efficient tool for retirement planning and intergenerational wealth preservation. This change requires a rethinking of wealth management strategies in response to the evolving tax landscape.

What does this mean for IHT planning

Retirement income and intergenerational planning with clients will now need to be revisited and considerations made to maximise both personal and residential nil rate band allowances, as well as gift allowances. Both small gifts and regular gifts from income are IHT-free, while larger gifts are exempt only if the donor survives for at least seven years after making the gift. Modern platforms simplify this process by providing tools to document gifts out of normal expenditure whilst also enabling an easy transition of assets between wrappers and family accounts.

Investment bonds are another versatile tool. Clients can withdraw up to 5% of their bond premium annually without an immediate tax charge and bond segments can be assigned to lower-rate taxpayers, creating additional tax efficiencies. Offshore investment bonds have the benefit of investments growing in a gross roll-up environment which is advantageous where any recipient of the proceeds during the life of the bond is a non-UK taxpayer.

Trusts remain a cornerstone of intergenerational wealth planning. While planning can be more complex, trusts can remove assets from a donor’s estate, reducing IHT exposure and provide a clear demonstration to clients and their families of the value of working with a professional financial adviser. This type of planning also accentuates the importance of educating clients about the seven-year rule and the ongoing obligations of trust arrangements.

Family investment companies are certainly now an option that has to be considered by advisers with higher net worth clients seeking to transfer wealth down the generations.

The budget has clearly demonstrated the benefit for affluent clients of diversifying their investments across different tax wrappers beyond the ISA, pension and general investment account (GIA) triumvirate. Broadening a client’s investments beyond these can provide much needed flexibility to retirement income and IHT plans considering possible future changes to governments and their tax policy.

Why platform choice is key for effective wealth management

In light of this, financial advisers may need to review their choice of platform to support the evolving demands of intergenerational and retirement income planning. Advisers and their clients may benefit from platforms with the full range of solutions available, first-class technical support and extensive functionality around family-linking and the ability to move cash and assets seamlessly between different wrappers. Simple platforms offering only GIAs, ISAs and pensions may no longer meet the needs of affluent clients.

The path ahead

The Budget was a reminder that rules can change, and often do. The removal of pensions for IHT means a fundamental rethink to intergenerational wealth planning. As wealth continues to concentrate across generations, advisers must consider every available tool to protect clients’ legacies by mitigating tax as much as possible and ensuring protection of these legacies. Whether through optimising allowances, deploying trusts, or integrating bonds into portfolios, there’s a growing need for high quality professional advice and sophisticated platform capabilities to support it.

The financial planning industry has a unique opportunity to lead clients through this evolving landscape, ensuring they not only navigate today’s complexities but are prepared for the future.

This article is based on our understanding and interpretation of applicable law and legislation.