Retiring on £1m+: The Complete Planning Guide

Why Standard Retirement Guidance Breaks Down at £1 Million

Most retirement advice is built around a simple idea: save as much as possible, draw down gradually, and leave the rest to your family through your pension.

That model worked well for decades. It no longer works cleanly for anyone retiring with £1 million or more in accumulated wealth.

Three structural changes have broken the old playbook.

The Lifetime Allowance Is Gone, But the Tax-Free Cash Cap Remains

The Lifetime Allowance was abolished in April 2024. Many high earners welcomed that. But the Lump Sum Allowance (LSA) of £268,275 remains firmly in place.

That cap means 25% tax-free cash applies only to the first £1,073,100 of pension savings. Everything above that comes out fully taxed as income.

For a £1.5 million pension pot, roughly £1.23 million is taxable on the way out. At higher or additional rate, that is a significant and unavoidable liability unless you plan carefully.

Pensions Enter the IHT Net From April 2027

From April 2027, unspent pension funds will form part of your taxable estate for Inheritance Tax purposes. This is the single biggest structural change to retirement planning in a generation.

Until now, pensions sat outside the estate entirely. Many high earners deliberately left pensions untouched, drawing from ISAs and GIAs first, precisely because pensions passed free of IHT.

That logic is now reversed. We explain the full implications in our dedicated article on pension IHT changes from 2027.

The Taper Limits Pension Accumulation for High Earners

If your adjusted income exceeds £260,000, your annual allowance tapers down. The minimum is £10,000 once adjusted income reaches £360,000.

The standard annual allowance is £60,000. Three years of carry forward can add up to £180,000 more. But for those earning above the taper threshold, the window to build pension wealth is narrower than most assume.

This makes the years before the taper bites particularly valuable. It also makes asset location across pension, ISA and GIA more important than ever.

The 2026/27 Numbers You Need to Know

We work with verified figures for the current tax year. Here is the reference set we use across all planning for £1 million-plus retirements.

• Pension annual allowance: £60,000 (tapered from £260,000 adjusted income, minimum £10,000)
• Carry forward: up to three prior years of unused allowance
• ISA allowance: £20,000 per person per year
• Tax-free cash: 25% of pension, capped at £268,275 (the Lump Sum Allowance)
• LTA: abolished April 2024
• CGT annual exempt amount: £3,000
• Dividend allowance: £500
• 60% effective tax band: £100,000 to £125,140 (personal allowance withdrawal)
• IHT nil-rate band: £325,000
• Residence nil-rate band: £175,000 (subject to taper above £2 million estate)
• Business Relief cap: £2.5 million from April 2026
• Pensions included in IHT: from April 2027
• Minimum pension access age: 55 now, rising to 57 in 2028
• State Pension age: 67
• Corporation tax: 25% (19% on profits under £50,000)
• Employer NI: 15% on earnings above £5,000
• Employee NI: 8%

Asset Location: Where You Hold Wealth Matters as Much as How Much You Hold

Asset location is the discipline of placing each investment in the most tax-efficient wrapper for its purpose. At £1 million-plus, getting this wrong costs tens of thousands in unnecessary tax.

What Belongs Inside a Pension

Pensions remain the most tax-efficient accumulation vehicle for most earners. Contributions attract income tax relief at your marginal rate. Growth is free of income tax and CGT inside the wrapper.

However, post-2027, pensions are no longer the obvious place to park wealth you intend to leave to your family. The calculus has shifted.

Pensions are best suited to:

• Assets you plan to draw as retirement income
• Higher-growth investments where tax-free compounding adds most value
• Contributions made while you are a higher or additional rate taxpayer

They are less suited to wealth you intend to pass on, unless your estate is below the IHT thresholds or you have other planning in place.

What Belongs Inside an ISA

ISAs offer tax-free income and growth, with no tax on withdrawal. Unlike pensions, ISA withdrawals do not count as income. That matters enormously when managing the £100,000 to £125,140 band where the personal allowance is withdrawn.

ISAs are well suited to:

• Bridging income between early retirement and State Pension age
• Supplementing pension income without triggering higher rate tax
• Holding assets you may need to access flexibly
• Wealth you intend to pass to a spouse (ISAs transfer on death without losing the tax-free status)

The £20,000 annual limit means ISA wealth builds slowly. Couples can contribute £40,000 per year combined. Over a decade, that is £400,000 sheltered from income tax and CGT.

What Sits in a General Investment Account

A GIA has no contribution limits and no wrapper benefits. Tax applies to dividends above £500 and gains above £3,000 per year.

GIAs are not inherently inefficient. They become efficient when managed carefully:

• Use the annual CGT exemption each year to crystallise gains
• Bed and ISA: sell and repurchase inside an ISA to shelter future growth
• Hold assets with low natural income to minimise dividend tax
• Consider the CGT uplift on death, which resets the base cost for beneficiaries

For very large estates, GIA assets may actually be preferable to pension assets post-2027, because GIA assets receive a CGT base cost uplift on death whereas pension assets will face both IHT and income tax when drawn by beneficiaries.

Drawing Order for Large Estates: The Sequence Matters

The old rule was simple: draw ISA and GIA first, leave the pension untouched for as long as possible. The pension passed IHT-free, so deferring it was almost always correct.

From April 2027, that rule no longer applies automatically. The optimal drawing order depends on your estate size, your income needs, your beneficiaries’ tax positions and your IHT exposure.

The Pre-2027 Default (Now Outdated for Many)

Draw GIA first, then ISA, then pension. Leave pension to pass outside the estate.

This remains valid if your estate is below the IHT thresholds, or if your pension is modest relative to your other assets.

The Post-2027 Framework

For estates likely to face IHT, the pension is no longer a free pass. Unspent pension funds will be subject to IHT at 40% on death, and then income tax when drawn by beneficiaries. The combined effective rate can exceed 60% in some scenarios.

This changes the drawing order logic significantly.

We now consider drawing pension income earlier, particularly in the years between retirement and State Pension age, when total income may be lower. This reduces the pension pot subject to IHT while using income at a lower marginal rate.

A simplified illustrative framework for a couple with a £2 million estate might look like this (illustrative only, not personal advice):

1. Take tax-free cash up to the £268,275 LSA at retirement. Invest in ISA or GIA.
2. Draw pension income in the years before State Pension age, keeping total income below £50,270 where possible.
3. Use ISA withdrawals to supplement income without triggering higher rate tax.
4. Manage GIA gains annually using the £3,000 CGT exemption.
5. After State Pension age, reassess the balance between pension drawdown and ISA use based on remaining estate size.

The right sequence is personal. It depends on your specific numbers, your spouse’s position, your health, and your intentions for your estate.

The Personal Allowance Trap at £100,000 to £125,140

Pension income counts as earned income. If pension drawdown pushes your total income above £100,000, you lose £1 of personal allowance for every £2 of income above that threshold.

The effective tax rate in this band is 60%. This is one of the most damaging and least-discussed tax traps in retirement planning.

Managing drawdown to stay below £100,000, or to jump cleanly above £125,140, is a core part of our planning for high earners. ISA withdrawals do not count as income and can be used to fill the gap without triggering this trap.

IHT Planning in Retirement: The Post-2027 Landscape

Inheritance Tax planning used to be something you did separately from retirement planning. From April 2027, the two are inseparable.

Your Estate After April 2027

A couple with a combined estate of £2 million, including a £600,000 pension, faces a very different picture post-2027.

The combined nil-rate bands for a couple are £650,000 (two NRBs) plus up to £350,000 RNRB (two RNRBs), giving a potential £1 million threshold before IHT applies, assuming the estate passes to children and the RNRB conditions are met.

Above £1 million, IHT applies at 40%. On a £2 million estate, that is potentially £400,000 in IHT. The pension element, previously exempt, now contributes to that liability.

Note that the RNRB tapers away for estates above £2 million, at £1 for every £2 above the threshold. Large estates may lose the RNRB entirely.

Business Relief After April 2026

Business Relief (BR) has historically offered 100% IHT relief on qualifying business assets with no cap. From April 2026, a £2.5 million cap applies to the 100% rate. Assets above that threshold attract relief at only 50%.

For business owners, this changes the IHT planning landscape significantly. We cover this in detail in our article on IHT planning for business owners.

Spousal Exemption and the Cascading Problem

Assets passing between spouses are exempt from IHT. This remains unchanged. However, it simply defers the liability to the second death.

For large estates, deferral can be counterproductive. It concentrates wealth in one estate, potentially losing the RNRB taper and increasing the eventual IHT bill.

Equalising estates between spouses, using both sets of allowances, and planning the sequence of asset transfers are all part of effective IHT planning in retirement.

When Gifting During Retirement Beats Holding

Gifting is one of the most powerful and underused tools in retirement planning for high earners. The instinct to hold wealth is understandable. But in many cases, structured gifting reduces IHT, supports the next generation, and costs the giver very little in practical terms.

The Seven-Year Rule and Potentially Exempt Transfers

Gifts to individuals are Potentially Exempt Transfers (PETs). If you survive seven years from the date of the gift, it falls outside your estate entirely.

For someone retiring at 60 with a large estate, gifting early in retirement gives the best chance of the seven-year clock completing before death.

Annual Exemptions and Small Gift Allowances

Each person can give £3,000 per year free of IHT (the annual exemption). Unused allowance from the prior year can be carried forward once. A couple can give £12,000 in year one if the prior year’s allowance was unused.

Additionally, each person can give up to £250 to any number of individuals per year, free of IHT, provided no other exemption applies to that recipient.

These amounts are modest relative to a £1 million-plus estate. But used consistently over a 20-year retirement, they add up.

Normal Expenditure Out of Income

This is the most powerful gifting exemption most people never use. Gifts made regularly, out of income (not capital), as part of a normal pattern of expenditure, are immediately exempt from IHT with no seven-year wait.

For a retiree with pension income of £80,000 and living costs of £50,000, the surplus £30,000 per year could be gifted under this exemption. Over ten years, that is £300,000 removed from the estate with no IHT exposure.

The rules require the gifts to be habitual, from income, and not to affect the donor’s standard of living. Documentation is important. We help clients establish and record this properly.

Gifting Versus Holding: The Post-2027 Comparison

Before April 2027, holding wealth in a pension and passing it on was often more efficient than gifting. The pension passed IHT-free, so there was little incentive to gift from pension income.

After April 2027, pension income drawn and gifted under the normal expenditure exemption may be more efficient than leaving the pension undrawn. The pension would otherwise face IHT at 40% and then income tax when drawn by beneficiaries.

This is a significant shift. It means that for some clients, drawing more pension income in retirement and gifting the surplus is the right strategy, even if they do not need the income themselves.

Worked Illustration: A £1.8 Million Estate (Illustrative Only)

This example is illustrative only and does not constitute personal financial advice. Individual circumstances vary significantly.

Consider a couple, both aged 62, with the following assets:

• Pension (one spouse): £900,000
• ISAs (combined): £400,000
• GIA: £300,000
• Main residence: £600,000 (no mortgage)
• Total estate: approximately £2.2 million

Their combined IHT threshold is £1 million (two NRBs plus two RNRBs), assuming the property passes to children. However, the estate exceeds £2 million, so the RNRB begins to taper. At £2.2 million, £100,000 of RNRB is lost, reducing the threshold to £900,000.

Potential IHT on £2.2 million estate: approximately £520,000.

Post-2027, the £900,000 pension is inside the estate. If undrawn, it faces IHT at 40% (£360,000) and then income tax when drawn by children, potentially at 40% or 45% on the remainder.

A structured plan might include:

• Taking the full £268,275 LSA tax-free cash at retirement and placing it in ISAs over several years
• Drawing pension income of £37,700 per year (basic rate band, after personal allowance) from age 62 to 67
• Gifting £15,000 per year from surplus income under the normal expenditure exemption
• Using annual CGT exemptions to crystallise GIA gains and bed-and-ISA where possible
• Reviewing the plan at 67 when State Pension begins and income dynamics change

Over five years, this approach could reduce the pension pot by approximately £188,500 in drawdown, remove £75,000 from the estate via gifting, and shelter additional capital in ISAs. The IHT liability reduces meaningfully, and the family retains more wealth overall.

The Role of a Chartered Financial Planner

Planning a £1 million-plus retirement involves tax law, investment strategy, estate planning and cash flow modelling working together. A mistake in one area can undermine the others.

We are chartered financial planners based in Bristol. We work with high earners and high-net-worth individuals across the UK. Our approach is built around long-term relationships, not one-off transactions.

You can read more about our work with high-net-worth clients on our high-net-worth financial advisers page.

We use detailed cash flow modelling to show you the impact of different strategies across your lifetime and your estate. We stress-test assumptions. We revisit the plan as legislation changes.

The April 2027 pension IHT change is the most significant shift in retirement planning in a generation. If you have not reviewed your plan in light of it, now is the time.

Talk to Us About Your Retirement Plan

If you are approaching retirement with significant wealth, the decisions you make in the next few years will shape your financial position for decades.

We offer an initial conversation with no obligation. We will listen to your situation, explain how the changes affect you specifically, and outline what a structured plan might look like.

Book a free consultation with Frazer James and take the first step towards a retirement plan built for your level of wealth.

About The Author

Chris Hindle

Chris is the Co-Founder and a Chartered Associate at Frazer James Financial Advisers. With over a decade in financial planning, he specialises in research, technical analysis, and firm operations, helping ensure clients receive clear, well-structured financial advice.

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