The pension tax change franchise owners can’t afford to ignore: Pension Tax Changes 2027
Major inheritance tax changes coming in 2027 could leave franchise owners and their families facing an effective tax rate of up to 91% on unused pension wealth.
Understanding the implications of the Pension Tax Changes 2027 Pension Tax Changes 2027 is essential for effective financial planning.
For many franchise owners, years of building successful businesses have gone hand in hand with building substantial pension savings. Until now, pensions have been one of the most tax-efficient ways to pass wealth to the next generation.
Understanding the Pension Tax Changes 2027 is crucial for long-term planning.
That advantage is about to change.
From 6 April 2027, unused pension funds will be included in a person’s estate for inheritance tax (IHT) purposes, potentially creating a significant tax bill for franchise owners whose estates exceed inheritance tax thresholds.
Why franchise owners should pay attention
Pension Tax Changes 2027: Key Implications for Franchise Owners
Franchise owners must be proactive in adapting to the Pension Tax Changes 2027 to protect their legacies.
Many franchisees spend decades growing profitable businesses while making regular pension contributions. Alongside the value of their franchise business, property and investments, pension funds often form a major part of their overall wealth.
Under the new rules, those pension assets could become subject to both inheritance tax and, in some cases, income tax when passed to beneficiaries.
For larger estates, the combined tax burden could be severe.
What happens now?
Currently, unused pension funds generally sit outside your estate for inheritance tax purposes.
If you die before age 75, beneficiaries can usually inherit the remaining pension tax-free.
If you die aged 75 or over, beneficiaries pay income tax when they withdraw money, but the pension itself remains outside the inheritance tax calculation.
For many business owners, this has made pensions an important estate planning tool.
What’s changing in April 2027?
From 6 April 2027, unused pension funds will count as part of your estate when inheritance tax is calculated.
The upcoming Pension Tax Changes 2027 will necessitate a reevaluation of estate plans.
For someone aged over 75 whose beneficiaries pay higher-rate income tax, the combined effect could leave only around one-third of their pension wealth reaching their family.
A £100,000 pension could look like this:
- Pension value: £100,000
- Inheritance tax (40%): £40,000
- Remaining fund: £60,000
- Income tax at 45%: £27,000
- Amount received by beneficiaries: £33,000
That’s an effective tax rate of 67%.
When the tax bill becomes even bigger
The biggest impact could be felt by franchise owners with larger estates.
Addressing the Pension Tax Changes 2027 should be a priority for franchise owners with substantial estates.
If including pension assets pushes an estate above £2 million, valuable inheritance tax allowances begin to disappear. This can significantly increase the overall tax liability.
In some circumstances, combining inheritance tax with income tax means families could lose up to 91% of the value of an unused pension before beneficiaries receive what’s left.
For franchise owners who have spent years growing businesses, acquiring commercial property or building investment portfolios, these changes could dramatically alter succession and estate planning.
Planning ahead
Although the rules do not take effect until April 2027, advisers say there is still time to review existing arrangements.
Potential strategies may include:
- Reviewing whether pension drawdown remains the most suitable option.
- Considering whether an annuity better fits long-term estate planning objectives.
- Taking tax-free pension lump sums where appropriate.
- Using lifetime gifting strategies to reduce the size of an estate.
- Reviewing pension beneficiary nominations to ensure they still meet family objectives.
The right approach will depend on individual circumstances, particularly for franchise owners whose business interests form a significant part of their overall estate.
Time to review succession plans
For many franchise owners, succession planning has traditionally focused on transferring the business to family members or preparing it for sale.
The upcoming pension changes highlight the importance of taking a broader view of wealth planning, ensuring business assets, pensions and personal estates all work together as part of a long-term strategy.
The Pension Tax Changes 2027 are a critical factor in modern estate and business succession planning.
With less than a year before the new rules come into force, advisers recommend reviewing existing plans sooner rather than later to maximise the options available.
