It’s no surprise that many are revising IHT and estate planning strategies ahead of April 2027 and based on Governement estimates it is clear to see why, says Mark Lambert, Head of Onshore Bond Distribution, Chesnara Life (UK) Ltd.
Paraplanners and advisers are busily revising IHT and estate planning strategies ahead of the looming inclusion of unused defined contribution (DC) pensions in estates from April 2027.
Based on Government estimates1, it is clear to see why: in the first year that unused DC pensions are included in estates around 10,5002 estates will have an IHT liability they would not have had otherwise, and a further 38,500 estates will pay more IHT.
Chesnara Life’s research2 underlines the scale of the work being undertaken by paraplanners and advisers to respond to the new rules.
It found that on average advisers estimate 26% of their clients have already started changing IHT planning in response and that on average they estimate 30% will have changed IHT and estate planning by April 2027.
It is perhaps no surprise that the study2 found 81% of advisers and paraplanners say IHT and estate planning has become more complex in the past two years following Budget changes.
The onshore bond alternative
The research found that onshore bonds on their own and onshore bonds in trusts are emerging as a strong alternative solution for paraplanners to consider now that unused DC pensions are set to be included in estates.
Around 71% of advisers questioned said they will use onshore bonds more because of the change, while 68% said they will use onshore bonds with trusts more.
Perhaps that reflects historic underuse of onshore bonds, but the nearest product alternatives were funds in general with 27% saying they would use them more while 22% said the same about cash and equity ISAs.
Onshore bonds and onshore bonds in trusts have already been gaining increased prominence as an IHT and estate planning solution given the rise in IHT receipts driven by the freeze in IHT thresholds, with the nil-rate band held at its April 2009 level and the residence nil-rate band held at its April 2020 level until April 2031.
Including unused DC pension funds in estate calculations fundamentally changes IHT mitigation strategies. Bigger unused pension funds will push estates past thresholds and lead to them losing the resident nil rate band potentially.
It also raises the risk of double taxation on pension funds with estates paying 40% on the unused funds and possibly income tax on withdrawals from the remaining funds.
Paraplanners will be looking at strategies such as taking tax-free lump sums and pension income as early as possible and reviewing gifting plans. Onshore bonds and trusts can play a major role as well.
Onshore bonds in practice
Onshore bonds offer a combination of tax-deferred growth, administrative simplicity, and flexible, trust-based wealth transfer options.
Using excess income to fund an onshore bond within a trust structure provides a more IHT-efficient way to pass capital to beneficiaries and the 5% tax-deferred withdrawal feature can be used to supplement living costs during retirement.
Because tax is deferred, this can be especially useful for clients whose marginal rate of income tax is expected to drop in the future. Switching funds within an onshore bond does not trigger Capital Gains Tax, which can make ongoing portfolio management more tax efficient.
They offer tax deferment and tax management of reinvested dividends and interest in the portfolio and they provide simple tax administration as there is no need for a tax return until a chargeable event leading to a taxable gain happens.
Crucially for IHT planning they can be assigned for no consideration to taxpayers on a lower rate or to non-taxpayers, which can be a highly tax efficient strategy for gifting and intergenerational planning.
That is where trusts become important.
The trust option
Paraplanners setting up a trust for an onshore bond need to focus on and clarify what the estate planning goals are and assess from there what trust type to use while also managing the use of the 5% tax-deferred allowance, and deciding who ultimately will face the tax liability once the bond is cashed in.
Absolute or Bare trusts are generally used for straightforward gifts where the beneficiary cannot be changed and are used for passing assets directly to children or grandchildren.
Discretionary trusts provide flexibility for trustees to change beneficiaries and the amounts left making them more useful for multi-generational wealth preservation.
Discounted gift trusts and loan trusts allow the settlor to receive fixed capital withdrawals while immediately reducing the estate value for IHT. Whilst while loan trusts allow access to the initial capital until as the loan is repaid.
Selecting the right type of trust is the key issue but the process has other issues to consider such as selecting trustees. Usually there should be at least two and of course, the trust needs to be registered with HMRC Trust Registration Service within 90 days of creation.
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Sources:
1. HM Revenue & Customs/HM Treasury (2025): Inheritance Tax on unused pension funds and death benefits (policy paper, published following the Autumn Budget 2024): https://www.gov.uk/government/publications/inheritance-tax-unused-pension-funds-and-death-benefits/inheritance-tax-unused-pension-funds-and-death-benefits
2. Chesnara Life commissioned independent research company PureProfile to interview 200 UK financial advisers during April 2026.
About Chesnara Life (UK) Ltd
Chesnara Life (UK) Ltd, formerly HSBC Life (UK) Limited, is a UK subsidiary of Chesnara plc. Chesnara Life offers its open architecture Onshore Investment Bond as a stand-alone offering or through a range of third-party investment platform partners. The Chesnara Life Business Development Team supports all versions of our Bond. The Chesnara Life Onshore Investment Bond provides individual investors with access to over 4,800 funds (Investment Trusts, Open Ended Investment Companies, Unit Trusts, and Exchange Traded Funds) from more than 200 Fund Managers. chesnaralife.co.uk
Chesnara Life (UK) Ltd is authorised by the Prudential Regulation Authority (“PRA) and regulated by the Financial Conduct Authority (“FCA) and the Prudential Regulation Authority (“PRA”). Our Financial Services Register number is 133435 and our registered office is at: 2nd floor, 33-34 Winckley Square, Preston, Lancashire, PR1 3JJ, United Kingdom. Registered in England number 8869
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