Retirement Income Drawdown Planning & IHT: Agriculture

21st June 2026

Recent legislative changes are set to significantly reshape retirement income drawdown planning and Inheritance Tax (IHT) mitigation strategies. From April 2027, most unused pension funds and death benefits will form part of an individual’s estate for IHT purposes.

Under current rules, pension death benefits (including unused funds) typically fall outside the estate, with income tax treatment determined by age at death. Where death occurs before age 75, beneficiaries can draw pension benefits free of income tax, however, from April 2027 Inheritance Tax may apply first. Where death occurs after age 75, pension funds may be subject to IHT and then income tax at the beneficiary’s marginal rate when drawn. This creates the potential for higher effective tax rates, particularly for non-spousal beneficiaries.

The rules for paying any tax liability are yet to be confirmed but the spousal and charity exemptions are expected to remain, meaning pension funds passed to a spouse, civil partner or qualifying charity would not trigger an immediate IHT liability.

These changes are expected to drive a shift in planning strategies. Retaining pension wealth for intergenerational transfer may no longer be appropriate, with greater emphasis on spending, gifting, protection solutions and alternative investments.

Despite this, pensions remain highly tax-efficient and central to long-term financial planning, with increasing life expectancy and rising living costs reinforcing the need to build sufficient retirement provision.

Our cashflow modelling software helps clients move from accumulation to controlled spending or gifting, while highlighting how pension inclusion may increase potential IHT liabilities.