The inclusion of unused pension assets in inheritance tax (IHT) calculations will have a significant positive impact on the later life lending market, according to Key Advice.

CEO of Key Advice and Air, Will Hale, suggested that advisers now have an “obligation” to consider later life lending options as a core element of clients’ retirement and estate planning strategies.

From 6 April 2027, most unused pension funds and death benefits will be included in the value of an individual's estate for IHT purposes. The Government has estimated that out of approximately 213,000 estates with inheritable pension wealth in 2027/28, about 10,500 estates will become liable for IHT where they previously were not, and around 38,500 estates will pay more IHT than before.

The UK has over £2trn in property wealth held by over-55s, and Key has stated that the inclusion of pensions in IHT calculations will “shift adviser focus” to releasing housing wealth as a core tax planning tool that wealth advisers recommend, to reduce estate size or fund retirement more efficiently.

Key believes advisers will look to convert pension savings to provide a guaranteed income in retirement, rather than preserving these assets for inheritance.

“Efficient tax planning is a foundation and driving principle of long-term financial planning,” Hale said.

“Later life lending products can help fund retirement and be used as an IHT mitigation tool, therefore meaning that they are an important consideration for all advisers involved in wealth accumulation and decumulation.

“Later Life Lending may lie outside of the core skillset of many wealth advisers and trusted referral partnerships with later life lending specialists is likely the strongest route for advisers to deliver great client outcomes and to fulfil their Consumer Duty obligations.

“Similarly, those mortgage advisers specialising in later life lending should also ensure that they have relationships with tax experts and wealth managers in order that an holistic approach can be followed when customer circumstances require.”

---