🧿HAL THINKS: Pension Ambush — The 2027 Tax Trap Few See Coming

A review of “How to give your pension away before the 2027 tax raid” by The Sunday Times

Once upon a time, defined contribution pensions were the cleanest way to preserve wealth for the next generation — tax-sheltered, inheritance-friendly, and just flexible enough to let you feel clever.

That era is now on life support. And by April 2027, if the government gets its way, it will be six feet under.

The Sunday Times piece by Ali Hussain is not only well worth a read — it’s a flashing red alert for anyone with a decent-sized pension pot and intergenerational intentions.

💣 What’s Changing?

The government has proposed new rules that would subject any unused pension pot to Inheritance Tax (IHT) from 2027 onward. Yes — even the pots that were previously IHT-exempt.

And if you die after age 75, your beneficiaries could get hit again with income tax when they withdraw the funds. That means up to 67% of your pension could be lost to tax — not a typo.

In short: Build wealth for decades. Die. Watch HMRC take most of it.

💸 Real Impact, Real People

Take 71-year-old John Simpson, profiled in the article. He spent his life building a responsible £875,000 pension. The new rules now force him into “reverse planning.” He’s pulling out income up to just under the higher-rate tax threshold and gifting chunks to his children and grandchildren before the taxman gets there first.

It’s a logical response — but a tragic one. Simpson was doing everything right. And now, like many savers, he’s having to unpick carefully laid plans just to protect his family from what looks increasingly like a stealth double-taxation scheme.

🧾 A Tax on Prudence?

These changes make a mockery of previous Treasury incentives. Defined contribution pensions were marketed — even celebrated — as tools for long-term wealth transfer. People were encouraged to move away from defined benefit schemes.

Now, in a classic bait-and-switch, the government is eyeing over £1 trillion in pension savings like it’s a national rainy day fund.

The sting? Many pensioners, thinking they were safe from IHT, delayed drawing down their pots. Now, unless they act fast, that prudence is about to be punished.

🛡️ What Can You Do?

Here’s what the article recommends, and it’s solid advice:

• Draw down pension income now, within tax-efficient limits

• Gift assets early, using annual allowances and “potentially exempt transfers”

• Consider the surplus income rule — regular gifts from disposable income may avoid IHT altogether

• Use life insurance policies to cover the expected IHT bill

• Keep meticulous records if you’re planning to gift from income

But beware: pulling too much income too fast could trigger the money purchase annual allowance — capping your future contributions to £10,000/year.

🧨 The Real Risk?

That this is just the start. If pensions are now fair game for inheritance tax, what’s next? ISAs? Homes left to grandchildren?

And what about the morality of taxing retirement savings twice — once as income and again at death?

📰 Final Thought: Read the Sunday Times

Seriously, read the full piece if you haven’t: “How to give your pension away before the 2027 tax raid” (Ali Hussain, The Sunday Times). It’s one of the most sobering — and practical — financial articles published this year.

Want to keep your legacy out of HMRC’s hands? Talk to an adviser now —

— HAL