Financial planners, wealth managers and lawyers are among those reporting an increase in wealthy older people withdrawing sums from their pensions to splash out on family holidays or gift to their children.
When this change is introduced in two years’ time, large numbers of people will be landed with bigger IHT bills when their family members pass away.
Mr Appleton, a lawyer who specialises in estate planning, said: “That means we’ll see people spending more while living and looking to enjoy the fruits of their hard savings.
“And clients aren’t just looking to enjoy themselves but still looking for ways to treat their loved ones. That might mean purchasing a holiday home and maximising family time or taking three generations of a family abroad for a once in a lifetime trip.”
Tom Selby, director of public policy at AJ Bell, said the investment platform was also hearing from its advisers that rising numbers of clients were considering accessing their pensions sooner than planned in an effort to avoid IHT.
“Rather than saving every penny for the next generation, it’s a moment to consider whether spending a little more on themselves – holidays, home upgrades, or experiences – might now make more sense.”
Currently, defined contribution (DC) pensions, where you build up a pot of money to give you an income when you retire, would not normally be part of your estate and there would be no IHT to pay.
But from 6 April 2027, DC pensions are set to be subject to IHT, with a consultation set to confirm this. The standard rate of IHT is 40 per cent.
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square SAVINGS Money ClinicRead MoreWho will be affected by the change?
Even with this change, IHT isn’t going to be an issue for most people as everyone has an entitlement to a nil-rate band of £325,000 of assets which they can leave to anyone free of IHT. This is also known as the IHT threshold.
An estimated 10,500 estates will pay what is known as Britain’s ‘most hated’ tax in 2027/28 for the first time, as a result of the changes, according to government figures.
Therefore, it is important not to make any rushed decisions about your retirement pot ahead of this deadline, as up until April 2027, it will still be possible to pass your pension to your nominated beneficiaries without paying IHT.
“IHT should only be a factor for those planning to pass money onto someone who isn’t their spouse or civil partner, as transfers to either will remain IHT free – including when pensions are brought into IHT from 2027.
Consider gifting
Gifting money or spending it are two of the simplest and most effective ways to reduce the value of your estate, leading to a lower tax bill for your offspring, Craig Rickman, pensions expert at interactive investor, said.
You can first access your pension cash at age 55. But this is increasing to 57 from April 2028.
“And if you decide to give it away, as long as it’s either covered by one of the IHT gifting exemptions or you survive seven years, there’s no IHT to pay either – so it’s extremely tax efficient.”
If you are taking out money to gift, it is worth speaking to a financial advisor, and being aware that if you pass away within seven years, some IHT may still be owed.
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