April 2, 2026
Since 2016, pensions have been one of the most powerful tools in estate planning. Unused pension funds could be passed on to loved ones largely free of Inheritance Tax, a significant advantage many families across the UK have relied on when thinking about how to structure their estates. From 6 April 2027, that changes, and the IHT pension changes UK families are facing represent one of the biggest shifts in retirement and estate planning in a generation.
The government’s Autumn Budget 2024 confirmed that most unused pension funds and death benefits will be brought into the scope of Inheritance Tax (IHT). For many families, particularly those who have accumulated significant pension wealth alongside other assets, the 2027 pension Inheritance Tax changes will require a careful review of existing plans. If you have not yet looked at how your estate could be affected, now is the time to act.
Currently, defined contribution pensions (personal pensions) are exempt from IHT. This means that unused pension funds typically fall outside your estate for IHT purposes, and your beneficiaries can receive that money without it being subject to the 40% tax that applies to other assets above the IHT threshold.
From 6 April 2027, that exemption will largely disappear. The IHT pension changes coming into UK law mean that unused pension savings will be counted as part of your estate when calculating any IHT liability. The standard nil-rate band of £325,000, and the residence nil-rate band of up to £175,000 where applicable, will still apply. But for many estates, the inclusion of pension wealth will push the total value well above those thresholds.
It is worth noting what remains unchanged: death-in-service benefits paid from a registered pension scheme will continue to fall outside your estate for IHT purposes. The spousal exemption also remains intact, meaning assets passed to a surviving spouse or civil partner, including pension funds, are still exempt from IHT.
Most estates will continue to have no Inheritance Tax liability after 6 April 2027; however, the government estimates that of around 213,000 estates with inheritable pension wealth in 2027 to 2028, approximately 10,500 will face an IHT liability where previously they would not, and around 38,500 will pay more IHT than before. The average increase in IHT liability where pension assets are included is estimated at around £34,000, which is a significant sum for many families.
To illustrate the impact of unused pension funds and Inheritance Tax, here’s a straightforward example.
Someone dies with a pension pot worth £700,000 and other assets totalling £800,000.
That’s a very different financial picture for the people left behind and shows why planning now is so important.
If you are concerned about how the 2027 pension Inheritance Tax changes could affect your estate, our independent advisers can review your pension and wider financial position with you. Contact us today for a no-obligation conversation.
One of the most significant concerns raised by financial planners in response to the IHT pension changes UK-wide is the potential for double taxation. If you die after the age of 75, your beneficiaries will typically pay income tax when they draw on any inherited pension funds. Under the new rules, those same unused pension funds may also have already been subject to Inheritance Tax as part of your estate. In some scenarios, this combined tax burden could substantially erode the value passed on to your family.
This is precisely the kind of complexity that makes professional advice so important. The interaction between IHT, income tax, and pension planning requires careful, joined-up thinking rather than a one-size-fits-all solution.
There are several areas worth reviewing before April 2027, ideally with the support of a qualified independent financial adviser.
Review your expression of wishes. Your pension provider holds a form that tells them who you would like your pension to pass to. Under the old rules, many people nominated children or other family members specifically to take advantage of the IHT exemption. Given the 2027 pension Inheritance Tax changes, it may now be more tax-efficient in some cases to nominate a spouse or civil partner, who benefits from the spousal exemption. Reviewing this document now and keeping it up to date is a straightforward but often overlooked step.
Look at how you are drawing down your pension.Some people have deliberately left unused pension funds untouched, drawing from ISAs and other assets instead, specifically because pensions were IHT-efficient. That strategy may need to be reconsidered in light of the IHT pension changes coming into effect in the UK. Depending on your wider circumstances, it may now make more sense to draw from your pension during your lifetime and preserve other assets for your estate.
Consider your overall estate plan.The inclusion of unused pension funds in Inheritance Tax calculations changes the maths for many families. Whole-of-life insurance policies, gifting strategies, trusts, and updated wills are all worth discussing with your adviser to ensure your estate plan still achieves what you intend it to.
Act early. With just over a year until the changes take effect, there is still time to review your position and make meaningful adjustments. But the window for considered planning is narrowing.
At Beaumont Wealth, we have been helping clients navigate complex pension and estate planning decisions for over 25 years. As fully independent, FCA-regulated advisers, our guidance is always impartial. We look at your whole financial picture and recommend what is genuinely right for you, not what suits a product provider.
The IHT pension changes coming into UK law from April 2027 are significant, but they are not a cause for panic. With the right advice, there are steps you can take now to protect the wealth you have worked hard to build and ensure it passes to the people you care about in the most tax-efficient way possible.
Speak to a pension adviser today or visit us at our offices in Shrewsbury, Chester, or Oswestry.
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