Inheritance tax: The six-month countdown

Introduction

From 6 April 2027, most unused pension funds and certain pension death benefits will be brought within the scope of inheritance tax (IHT). For some dentists, this could significantly change the amount of wealth they’re able to pass onto their loved ones.

Whether you’re a practice owner, an associate or approaching retirement, your pension is likely to form part of a wider financial picture. You may also have property, investments, savings or a business interest to consider when planning for the future.

With April 2027 just six months away, now is the time to understand what the changes could mean for you, review your existing arrangements and consider whether your financial plans still meet your needs.

Tax treatment depends on your individual circumstances and may be subject to change in future.

What’s changing in April 2027?

Pensions have traditionally played an important role in tax-efficient estate planning. In many cases, unused pension funds have been outside an individual’s estate for IHT purposes, making them a potentially effective way to pass on wealth.

This position is set to change. From 6 April 2027, most unused pension funds and pension death benefits will be included in the value of an individual’s estate when calculating IHT.

The standard IHT nil-rate band is currently £325,000. If your taxable estate exceeds the available tax-free allowances, the amount above those allowances may be subject to IHT at 40%. Other allowances and exemptions may apply depending on your circumstances.

This doesn’t mean every dentist with pension savings will automatically face an IHT bill. The impact will depend on the value and structure of your estate, the allowances available and who inherits your wealth.

Certain benefits will remain outside the scope of the changes, including qualifying death-in-service benefits from registered pension schemes. Transfers to a spouse or civil partner may also benefit from the existing IHT exemption.

The reforms have been legislated for in the Finance Act 2026, with the new rules due to apply to deaths on or after 6 April 2027.

Please note the Financial Conduct Authority (FCA) does not regulate inheritance tax planning and trusts.

Why dentists should review their financial plans

For many dentists, building wealth is a long-term process. Years of contributing to a pension, growing investments or building a dental practice can create a valuable financial legacy.

The way those assets are held can make a difference to how they’re treated for IHT purposes.

Your pension and retirement income

If you've built up substantial pension savings, the changes could affect the amount of wealth you ultimately pass on.

However, your pension also needs to provide financial security throughout retirement. Decisions about withdrawals should therefore balance your income needs with your estate planning objectives.

Your dental practice and business interests

If you own a dental practice or have an interest in a dental business, it's important to consider how that fits into your wider estate.

Business interests can have complex tax treatment and any available relief will depend on the relevant conditions and legislation. It's worth reviewing these arrangements alongside your pension and personal assets.

Your property and other assets

Your home, buy-to-let properties, savings and investments may all contribute to the value of your estate. Looking at these assets together can help you understand your potential exposure to IHT and identify whether your current arrangements remain appropriate.

Your family and beneficiaries

The changes may also affect the tax position of those who inherit your wealth. In some circumstances, inherited pension benefits could be subject to both IHT and income tax.

The treatment will depend on factors including the type of benefit and the age at which you die. Understanding how these elements interact can help you make informed decisions about your financial future and the legacy you want to leave.

The risk of leaving it too late

With six months to go, there’s still time to review your arrangements. However, effective estate planning takes careful consideration, particularly where pension savings, business interests and family assets are involved.

For practice owners, personal wealth and business finances may be closely connected. For associates and other self-employed dentists, pension savings and property could play a more significant role in their overall plans.

There’s no single approach that suits everyone. Making changes simply to reduce a potential tax bill could affect your retirement income, financial flexibility or ability to support your family during your lifetime.

The key questions to consider are:

• How much of your overall wealth is held in pensions, property, investments or business interests?
• Could the new rules increase your estate's potential IHT liability?
• Will your pension provide the income you need throughout retirement?
• Would making gifts during your lifetime be appropriate for your circumstances?
• Are your will, pension beneficiary nominations and wider financial arrangements up to date?
• If you own a dental practice, have you considered how your business interests fit into your succession and estate plans?

Taking time to review these questions now can help you make considered decisions rather than rushing into changes as April 2027 approaches.

How to prepare for the changes

Every dentist’s financial circumstances are different, but there are several practical steps you can take.

1. Review your overall financial position

Bring together a clear picture of your pension savings, property, investments, savings and any business interests. Understanding how these assets fit together is an important first step in assessing your potential IHT exposure.

2. Revisit your retirement plans

Your pension is there to support your lifestyle in retirement. Consider whether your current approach to drawing income remains appropriate in light of the changes, without compromising your long-term financial security.

3. Consider how you want to pass on your wealth

Gifting during your lifetime may be worth exploring, including the use of available gifting allowances and gifts from surplus income where the relevant conditions are met.

However, gifts and transfers can have wider tax and financial implications, so it's important to understand the consequences before acting.

4. Review your family and business arrangements

Check that your will and pension beneficiary nominations reflect your wishes. If you own a dental practice, you may also need to consider your business succession plans and how your practice interest fits into your wider estate.

5. Seek specialist financial advice

A Specialist Financial Adviser from Wesleyan Financial Services can help you understand how the changes could affect your circumstances, model different scenarios and consider your options alongside your retirement and family priorities.

Where appropriate, advice can also be coordinated with legal and tax specialists to help you make informed decisions.

Take control of your financial future

You've worked hard to build your career and your wealth. Whether you've spent years growing a dental practice, building your pension or investing for your family's future, it's understandable that you'll want to make informed decisions about what happens to those assets.

The April 2027 changes make it more important to review how your pension fits into your wider financial plans. But effective planning isn't simply about reducing a potential tax bill. It's about balancing your retirement needs, your family's future and the legacy you want to leave.

With six months remaining, now is a good time to understand your position and explore the options available to you.

Simply book an appointment with one of our dental experts today to discuss your options. Advice charges may apply.