More young people being gifted assets earlier due to inheritance tax change

As pensions will be drawn into the inheritance tax net as of April 2027, more people are looking to give away their assets earlier to avoid being taxed

More young people are approaching financial advisers because they stand to come into wealth sooner than they expected. As a result of Labour’s plan to bring pension pots into the inheritance tax (IHT) net from April 2027, more families have been deciding to hand over assets earlier than previously planned to avoid their descendants being taxed.

Charlotte Ransom, the chief executive of financial planning service Netwealth, said: “The proposed changes on IHT have driven a marked acceleration in clients bringing forward their gifting plans.

“This shift has led to a rise in enquiries from younger adults, often children or grandchildren of existing clients, looking for wealth management advice and support.”

Currently, unspent pensions are typically passed tax-free to beneficiaries at the trustees’ discretion. But under the proposed changes, these funds could be taxed at rates of up to 40 per cent as part of the estate if it exceeds the IHT threshold.

As a result, people have been looking to take advantage of the “seven-year rule”, whereby you can gift money to children or other loved ones and, provided you live for another seven years, no IHT is due.

In turn, younger adults are inheriting large lump sums much earlier than they may have expected.

Claire Exley, the head of advice at the investment management service Nutmeg, said: “In the past few years we have certainly noticed more younger people seeking free financial guidance or paid-for financial advice in order to help with their financial needs.

“With recent rule changes around inheritance tax and passing on wealth and assets, we anticipate that this will continue to grow.”

“Passing on money or assets while you are still alive can also help to minimise complexity later. Even relatively modest estates can become complicated after a family bereavement.”

A study earlier this year by the investment platform AJ Bell found that 53 per cent of advisers had had new clients approaching them for advice as a result of Chancellor Rachel Reeves’s proposal to impose IHT on death, with 84 per cent of advisers saying that queries about estate planning had increased.

Phineas Hirsch, a private client partner at the law firm Payne Hicks Beach, said: “We are seeing younger clients who are inheriting earlier – most recently driven by ‘early inheritances’ of family businesses which would previously have been retained until death by the parents.”

Saleem Sheikh, a senior partner at the law firm Seddons GSC, added: “We have definitely seen a rise in younger clients coming to us for estate and inheritance planning. People in their 20s and 30s are now engaging with these issues much earlier than previous generations.

“Some have inherited wealth unexpectedly and want to make sure that it is managed sensibly. Others are building businesses or acquiring property and want to plan ahead, not just for themselves but for their families.

“It is not just about wills anymore. They want to understand how trusts work, how to structure things like tax efficiently, and how to make sure that their affairs are in order.”

Trusts are used to manage assets and come in several different types. They can hold money, property, investments or other assets and are governed by specific terms set out in a deed of trust.

Trusts are often used in estate planning to protect assets, reduce inheritance tax or support beneficiaries who may be minors or financially inexperienced.

One key benefit is that assets held in a trust are usually not considered part of the settlor’s estate for probate purposes, which can help to avoid administrative delays and legal complications.