When Chancellor Rachel Reeves concluded her Autumn 2024 Budget speech, having announced changes to Capital Gains Tax (CGT) and plans to bring pensions within the scope of inheritance tax (IHT), advisers were left dealing with some of the most significant overhauls in estate planning in decades. Neil Jones, Tax and Estate Planning Specialist, Standard Life, explores how, more than a year on, we are now seeing how advisers and clients are adapting.
Demand is rising for solutions, such as onshore bonds, which offer tax-efficient ways to build future wealth while limiting exposure to IHT.
Turning point for estate planning
Pensions have been an effective shelter from IHT for years and feature heavily in estate planning strategies. However, this benefit is set to erode from April 2027, when pension pots will be brought into the taxable estate, and with it, altering one of the central principles of financial planning established in the post-pension freedoms era.
For advisers, this is a pivotal moment to review client strategies, reassess long-term plans, and provide clarity on potential wealth transfers. Many are already exploring alternative solutions to mitigate the impact of the reforms.
In our recent survey of 200 advisers, an average of 40% of clients were estimated to need a review of their financial plans in light of the changes. And while pensions will continue to play a central role in building retirement income, advisers indicated that onshore and offshore bonds alongside gifts and trusts were the alternative products expected to grow in popularity.
Advisers take a fresh look at onshore bonds
Onshore bonds are far from new propositions. They were widely used throughout the 1980s and early 1990s, particularly by wealthier clients seeking tax‑deferred growth, trust planning flexibility, and diversified investment solutions. Their resurgence today stems from their tax-efficient properties combined with trust solutions to manage IHT exposure amid regulatory change.
Demand has been increasing in recent years, but we have seen this accelerate since the recent Budget announcements, with clients and advisers seeking to diversify their tax wrappers. More than ever, those nearing retirement are looking for tax-efficient solutions from trusted providers to manage IHT.
Providers are responding with new and enhanced propositions. At Standard Life, we recently returned to the onshore bond market with the relaunched Tailored Investment Bond, positioned alongside our well-established International Bond, offering advised client’s significant choice in their estate planning needs. The enhanced onshore product provides broad investment choice and modernised features tailored to evolving tax‑planning requirements.
It’s the key features of onshore bonds which make them particularly compelling in the current tax environment. Unlike many other investment options, gains within an onshore bond are exempt from CGT for both the original policyholder and any subsequent owners. With CGT allowances falling and rates rising, this exemption has become increasingly valuable.
In addition, individuals can withdraw up to 5% of the amount paid into the bond each year without triggering an immediate tax charge, with any unused allowance carried forward. This ability to defer income tax is especially useful for higher and additional rate taxpayers who expect to fall into a lower tax band later in life, such as when they retire.
The upcoming inclusion of pensions within the scope of IHT, combined with rising property values pushing more estates above the IHT nil rate band, has increased the appeal of placing an onshore bond into a trust as a tax-efficient way to pass on wealth.
Placing onshore bonds in a trust can be a valuable estate-planning strategy. With no investment income to report or tax to pay on an arising basis, they are straightforward for trustees to administer. Distributions to beneficiaries can also be highly tax-efficient, thanks to the ability to gift policy segments without creating a chargeable event. Segments can also be assigned to multiple trusts at different times, giving clients considerable flexibility.
Navigating through change
Advisers have long played a pivotal role in guiding clients through regulatory change. The current reforms have placed greater demands on their time and resources – over three-quarters of the advisers in our survey expect their workload to increase over the coming year. But this also presents an opportunity to reinforce the value of advice. Clients are seeking clarity, stability, and solutions that help them protect their wealth.
The flexibility of onshore bonds means they can integrate seamlessly with pensions, trusts, gifting strategies, and wider investments. Clients with significant assets will naturally look to a broader range of products to meet their long-term planning needs.
And advisers are hungry for insight and support with this. We are seeing high demand for technical guidance, worked case studies and expertise in the application of tax and trust strategies, and are committed to supporting advisers as they navigate change. Since the Budget announcements, Standard Life has been working to offer technical support and upskilling where there is a need.
We have launched an IHT Hub offering insight and briefings on the latest regulatory developments and have delivered several webinars looking at the most critical topics in this area. A recent adviser webinar looking at investment bonds attracted over 2,000 registrations and generated over 60 follow-up questions. The most common theme of questions: how best to reduce pension IHT exposure. Bonds are part of the adviser toolkit to address this.
A broad appeal
Against a backdrop of significant tax reform and growing client uncertainty, onshore bonds are becoming increasingly relevant. While they have traditionally appealed to specific client segments, they now offer clear benefits for a much broader range of clients seeking tax-efficient ways to build, preserve and transfer wealth. As advisers reassess long-term plans and adapt to the new planning landscape, onshore bonds are likely to play an important role in client strategies.
About Neil Jones Neil Jones is a tax and estate planning specialist at Standard Life. Neil has more than 30 years’ experience across adviser firms and product providers and has deep expertise in the areas of international wealth management, tax, estate and retirement planning