In our weekly series, readers can email any questions about their finances to be answered by our expert, Rosie Hooper. Rosie is a chartered financial planner at Quilter Cheviot and has worked in financial services for 25 years. If you have a question for her, email us at money@inews.co.uk.
Question: I am 56 and have investment property worth £2m and my home is worth £500,000. I live with my partner.
I have a Sipp worth £205,000 and an S&S ISA worth £160,000. I also have a cash ISA worth £60,000 and Premium Bonds worth £17,000.
Which areas of investment/savings should I focus on bolstering? I am already semi-retired and live of the rent from my investment property.
Answer: You have done many of the things financial planners would typically suggest as retirement approaches. You’ve reduced your exposure to investment property, built respectable pension savings and accumulated meaningful ISA wealth. The interesting wrinkle is that your priorities may be changing because of the inheritance tax changes coming in April 2027.
The first thing that jumps out is that you refer to a partner rather than a spouse or civil partner. That is an important nuance as this could drastically change how you should structure your plans.
From 6 April, 2027, most unused defined contribution pension funds will be brought into the inheritance tax net. Pensions have traditionally been one of the most tax-efficient assets to leave behind, but that advantage is being significantly reduced.
Looking at your figures, your estate is already substantial. You have investment property equity of around £1.75m, a home worth £500,000, a Sipp worth £205,000, ISAs worth £220,000 and £17,000 in Premium Bonds. That puts you comfortably above £2m before considering any future growth.
Once an estate exceeds £2m, the residence nil-rate band starts to be withdrawn. If your pension remains invested and continues growing, the April 2027 changes could increase the value counted for inheritance tax purposes and potentially worsen the loss of that additional allowance down to zero.
That is why I am not sure “put everything into the pension” is the obvious answer here. Many people have spent years being told to maximise pension contributions because pensions sit outside the estate. For those still building wealth, that can remain sensible.
But for someone who is 56, semi-retired, living off rental income and already facing a potential inheritance tax issue, the calculation is more nuanced.
In fact, I would be asking three questions before directing another pound into a pension.
First, do you have an up-to-date will? For someone with property, investment assets and an unmarried partner, that may be the single most important planning document you have.
Second, is marriage or a civil partnership something you would consider? There is nothing quite like a Chancellor’s tax changes to make weddings more financially attractive. Transfers between spouses and civil partners are generally exempt from inheritance tax, and surviving spouses can inherit unused allowances. Those protections do not automatically apply to unmarried partners.
Third, what is the objective of the money? If the goal is providing for your partner, the answer may be different from the goal of leaving wealth to children or grandchildren.
Given what you’ve told me, I suspect ISA funding deserves at least as much attention as pension funding going forward.
ISAs do not provide upfront tax relief like pensions. However, withdrawals are completely tax-free and there is no future income tax bill for beneficiaries who inherit the money. By contrast, pension beneficiaries can potentially face both inheritance tax under the new rules and income tax depending on the circumstances and their own tax position.
That is particularly relevant if the eventual beneficiaries are younger, working-age adults. A child or grandchild receiving pension money while paying higher-rate tax could lose a significant proportion through taxation on withdrawals.
None of this means pensions have become bad. Far from it, they still offer valuable tax relief on contributions and tax-efficient investment growth. But for someone in your position, the old “pension first, everything else second” rule looks much less compelling than it did a few years ago.
My instinct is that your biggest planning opportunities are now estate planning rather than investment selection.
You appear financially secure. The real questions are how assets pass on, who receives them and how much tax can be avoided along the way.
So, if I were sitting across the table from you, my priorities would be: review the will, review beneficiary nominations on the pension, consider whether marriage or a civil partnership makes sense and then think carefully about whether future surplus savings belong in ISAs rather than simply adding more to the pension.
At this stage of life, the challenge may no longer be building wealth. It may be making sure the wealth you’ve already built ends up in the right hands.
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