For many years, pensions sat quietly outside the Inheritance Tax (IHT) net. For individuals focused on long-term planning, that made them a powerful—if somewhat overlooked—component of intergenerational wealth transfer.
That position has now changed.
Following the 2024 Budget, pensions are due to be brought within IHT’s scope from April 2027. At the same time, income tax remains payable by beneficiaries on drawdown (particularly relevant where death occurs after age 75), which is the likely outcome for most estates. The combined impact is significant. In some cases, families may lose two-thirds of the original pension value due to a combination of inheritance and income taxes.
Why pension inheritance tax planning matters more than ever
For many families, the inclusion of pensions within the inheritance tax net represents a fundamental shift. It forces a reassessment not only of tax exposure but also of timing, control, and the role pension wealth plays in wider legacy planning.
From accumulation to optionality
Traditionally, pensions have been viewed as something to preserve for as long as possible—often with the intention of passing them on intact. But in the new environment, that assumption deserves to be challenged.
If pension wealth is now taxed on death, alongside the rest of an estate, the question becomes whether it is always optimal to leave surplus pension capital untouched. For some individuals, particularly those who do not rely on their pension to fund day-to-day income in retirement, the focus is shifting from accumulation to optionality.
That means exploring ways to extract and reposition capital over a lifetime—deliberately, gradually, and with a clear strategy—to create flexibility around how assets are invested, enjoyed, or ultimately passed on.
This is not about avoidance or aggressive planning. It is about understanding the tools that already exist and using them thoughtfully, deliberately, and within a compliant framework.
The policy context matters
At the same time as tightening the inheritance tax treatment of pensions, government policy has been pulling in another direction: encouraging more capital to flow into high-growth UK businesses.
The Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) incentives were designed precisely for this purpose. They provide generous income tax reliefs, capital gains tax advantages, and favourable inheritance tax treatment for investments into qualifying early-stage and growth companies. These incentives exist because such investments are risky and illiquid — but also economically valuable.
What is often overlooked is how these incentives can interact with pension drawdowns.
When structured carefully, pension withdrawals can be matched with investments in SEIS or EIS, allowing income tax arising on the drawdown to be partially — or, in some cases, wholly — offset by available reliefs. Over time, this strategy has an additional benefit: to reposition pension capital into assets that may be taxed more favourably on death, while retaining exposure to growth and supporting UK enterprise. Alternatively, the taxpayer may realise those assets and pursue other options.
The result, for the right individual, is greater control over how and when pension wealth is deployed.
Risk, realism and suitability
Of course, SEIS and EIS investments are not for everyone. Capital is at risk, returns are uncertain, and funds are illiquid. This approach only makes sense for individuals with surplus pension capital, a high tolerance for risk, and the ability to diversify across a broad portfolio of investments over time.
It also requires careful pacing. Matching drawdowns with investments, managing tax timing, and ensuring reliefs are not stranded demands both planning and experience. This is not a single transaction but a strategy implemented incrementally and reviewed regularly, and it is best done with professional oversight.
For the right individual, however, this approach can transform how pension wealth is viewed — from a static pot vulnerable to layers of taxation into a flexible source of capital aligned with both personal legacy goals and broader economic impact.
Education before action
At DSW Ventures, we believe good decisions start with understanding.
That’s why, alongside a leading national tax advisory firm, we’re hosting the first in a series of educational seminars this March to launch P-FIS—the Pension Fund Investment in S/EIS.
These sessions are designed to help individuals and advisers alike understand what has changed, how pensions are now taxed on death, and how established investment incentives can be used—responsibly and compliantly—as part of a broader wealth and legacy strategy.
Not as a scheme.
But as a strategy.
DSW Ventures invests on behalf of clients capable of making their own investment decisions and who clearly understand the risks involved in investing in early-stage companies, including the potential loss of the entire investment. We do not invest on behalf of retail investors. Please contact us or seek independent professional guidance if you are unsure of your status. This is not tax advice. DSW Ventures are not tax advisers. You should take your own professional tax advice. We cannot guarantee that investors will receive or retain SEIS, EIS, or other tax advantages, which are subject to many restrictions and qualifying conditions. Your money is at risk. SEIS and EIS shares are unquoted, illiquid, and high-risk and have a high incidence of failure and losses.