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The UK financial landscape is currently experiencing a seismic shift, with recent data revealing an unprecedented exodus of funds from private pensions. This record-breaking surge in withdrawals is not a sign of economic prosperity, but rather a strategic manoeuvre by savers reacting to looming changes in inheritance tax (IHT) rules. But what will happen to this newly liberated capital? For the savvy investor, a significant portion could well find a new home in the attractive tax wrappers of the seed enterprise investment scheme (SEIS) and enterprise investment scheme (EIS).
Do be aware that tax treatment depends on individual circumstances and may be subject to change. The latest information on tax relief schemes can be found on the HMRC website. Consult a registered financial advisor for advice specific to your personal circumstances.
Recent reports paint a clear picture: pension savers are withdrawing tax-free cash at an unparalleled rate. A figure shows that £10.43 billion was taken from pensions as tax-free cash in the six months to the end of March 2025 (Source). This represents a monumental 72% increase compared to the same period the previous year.
This dramatic uptick is largely a pre-emptive response to significant upcoming changes in how pensions are treated for inheritance tax purposes. As outlined in an HMRC policy paper, from April 6, 2027, most unused pension funds and death benefits will no longer sit outside a person’s estate. Instead, they will be included in a deceased’s estate and become liable for IHT (Source). This has understandably prompted many to reassess their estate planning strategies. The message from savers is clear: they are taking control of their wealth now to mitigate future tax liabilities.
With billions of pounds now sitting outside the traditional pension wrapper, the critical question for many is: what next? For those primarily driven by IHT concerns, SEIS and EIS investments offer a compelling and highly tax-efficient solution. These government-backed schemes, designed to encourage investment in small, growing UK businesses, come with a suite of attractive tax reliefs, chief among them being significant IHT benefits.
100% inheritance tax relief: One of the most powerful advantages of SEIS and EIS is the ability to achieve 100% relief from inheritance tax on qualifying shares. Crucially, this relief applies after the shares have been held for just two years. This is a stark contrast to the standard seven-year rule that typically applies to gifts and other assets for IHT purposes. For individuals moving substantial sums out of their pensions specifically to address IHT concerns, the two-year window offers a remarkably efficient way to reposition their wealth. This makes SEIS and EIS a strong candidate for funds that previously benefited from pension IHT exemptions.
Beyond IHT: a suite of tax advantages: While IHT relief is a primary draw for pension-leavers, SEIS and EIS also offer a range of other compelling tax benefits that make them attractive for a broader investment strategy. As one source highlights, "pensions will no longer be a default option, capable of meeting most people's retirement and inheritance tax-planning needs simultaneously" (Source).
The confluence of these factors – record pension withdrawals driven by IHT fears, coupled with the robust IHT and other tax reliefs offered by SEIS and EIS – creates a uniquely fertile ground for a significant increase in S/EIS investment.
As individuals seek new homes for their pension capital, the allure of turning a future IHT liability into an investment in promising UK growth companies, all while benefiting from immediate tax savings, is undeniable. For those who have liberated their wealth from the pension wrapper, the strategic move into SEIS and EIS could prove to be not just a defensive play against IHT, but an opportunistic move to foster growth and secure a more tax-efficient future for their estates.
