Retirees using annuities to dodge April 2027 pension inheritance tax bill
A growing number of retirees are using a combination of annuities and life insurance held in trust to convert pension savings into tax-protected family wealth as the April 2027 inheritance tax deadline approaches.
Retirees are increasingly exploring a strategy that involves buying a joint life annuity and using the guaranteed income to pay premiums on a whole-of-life insurance policy held in trust. The approach is designed to sidestep the April 2027 change when unused pension funds become subject to inheritance tax for the first time.
The tactic works by converting a pension pot into guaranteed income via an annuity. For example, a couple aged 65 with a 1 million pound pension could buy a joint life level annuity providing roughly 71,720 pounds annually. After income tax, around 39,000 pounds per year could then fund a whole-of-life policy held in trust, potentially securing about 2.5 million pounds of cover. Since the policy sits in trust, the payout passes to beneficiaries outside the estate, free of inheritance tax.
However, experts caution that the strategy comes with complexity and risk. HMRC has strict anti-avoidance rules for linked annuity and insurance arrangements, and the tax treatment depends heavily on how the policies are structured. Financial advisers stress that this is not a simple or automatic solution and requires professional guidance to ensure it is arranged correctly and complies with tax rules.
Annuities also lock in a fixed income for life, which can't be changed, and with joint life policies, the starting income is typically lower than single life alternatives. For level annuities, purchasing power erodes over time as income doesn't rise with inflation.
Based on reporting by Telegraph Money (8 September 2026). Information only, not advice.
Information only. This is general information, not financial, tax or legal advice, and not a personal recommendation. Tax rules depend on your individual circumstances and can change. Please speak to a qualified, FCA-regulated adviser or a solicitor before acting.