Retirees turn to onshore bonds as pensions face inheritance tax from 2027

The changes, which will bring most unused pension funds and certain death benefits within the scope of inheritance tax, are expected to increase inheritance tax bills for an estimated 38,500 families and bring a further 10,500 families into the inheritance tax net in the first year, according to HMRC estimates.

Against this backdrop, demand for onshore bonds increased by 250% in the first half of 2026, according to a recent survey by Quilter, as families look at alternative ways of structuring and managing their wealth.

Here, our Personal Tax Manager, Leo Sarkeshik, looks at why onshore investment bonds are attracting increased interest and what retirees and families might consider as they plan for the 2027 inheritance tax changes.

Why are families looking beyond pensions?

For many years, pensions have played an important role in retirement planning, while also offering potential inheritance tax advantages in certain circumstances.

From April 2027, however, most unused pension funds are expected to be included when calculating an individual’s estate for inheritance tax purposes.

This is prompting some retirees to reconsider how they hold their wealth and how they fund their retirement.

Rather than automatically drawing income from all of their investments in the same way, families are increasingly considering the tax treatment of different assets and how these could ultimately be passed on to beneficiaries.

Why are onshore bonds attracting interest?

Onshore investment bonds can provide a flexible investment structure for individuals looking to manage their wealth during retirement.

They allow investors to hold a range of underlying investments within an insurance-based wrapper and can provide flexibility over how and when withdrawals are taken.

For some investors, this makes bonds an attractive component of a wider retirement and estate-planning strategy, particularly as the tax advantages historically associated with retaining wealth within pensions are changing.

However, an onshore bond does not automatically make assets exempt from inheritance tax. Its suitability will depend on an individual’s circumstances, objectives and wider estate-planning arrangements.

Pensions versus other investments

The forthcoming changes mean that the decision about which assets to draw on during retirement may become more complicated.

Previously, some individuals could choose to use other assets to fund their lifestyle while leaving pension savings untouched for beneficiaries.

If those pension funds become subject to inheritance tax, the balance between retaining pension wealth and using other investments could look different.

This is one reason why families are reviewing the role that investment bonds and other assets could play alongside their pension arrangements.

What should retirees consider?

Anyone with significant pension savings may wish to review their wider financial position before the new rules take effect.

This could include considering:

• The expected value of pension funds at death
• Other investments and savings
• How retirement income will be funded
• The potential inheritance tax position of the estate
• Whether onshore bonds or other investment structures could have a role
• Existing trusts, gifts and estate-planning arrangements

The right approach will depend on individual circumstances, and there is no universal solution.