How Things Work Now 

At the moment, most pensions are not included within your estate for Inheritance Tax (“IHT”) purposes. That means: 

• The value of your pension is usually not included when calculating IHT. 

• If you die before age 75, your pension can often be passed on tax-free. 

• If you die after 75, your beneficiaries pay income tax on withdrawals, but there is still no IHT on the pension itself. 

Because of this, pensions have become a popular estate planning tool. Many people choose to spend other savings first and leave their pension invested to pass on to children or grandchildren. 

Inheritance Tax itself is charged at 40% on estates above the £325,000 nil-rate band (plus any additional residence nil-rate band if applicable). 

What’s Changing in April 2027? 

From April 2027, unused pension funds will generally be included in your estate for IHT purposes. 

In simple terms, this means: 

• Your pension will no longer automatically fall out with your estate. 

• Its value could push your total estate above the IHT threshold. 

• IHT at 40% may apply to part of your pension pot. 

Importantly, income tax rules on inherited pensions are expected to continue. So in some cases, beneficiaries could potentially face both Inheritance Tax and income tax. 

The aim of the change is to prevent pensions being used primarily as inheritance planning vehicles rather than retirement income. 

Who Could Be Affected? 

You may be affected if: 

• You have a sizeable pension. 

• You were planning to leave most of your pension untouched. 

• Your total assets (including property and savings) are near or above IHT thresholds. 

Those with smaller estates may see little or no impact. 

What Should You Do Now? 

There’s no need to panic — but it is sensible to review your plans. 

You might consider: 

• Reviewing your pension and overall estate strategy. 

• Ensure your pension nomination forms are up to date. 

• Speaking to a financial adviser about whether drawing pension income earlier makes sense in your circumstances. 

• Reviewing your will to ensure it still reflects your wishes. 

Tax planning should always be personal. What works for one family may not work for another. 

The Bigger Picture 

Pensions are still one of the most tax-efficient ways to save for retirement. The changes from April 2027 don’t remove their advantages — they simply reduce their usefulness as a way to pass on wealth free of Inheritance Tax. 

If you’ve built up your pension over many years, this change is significant. Taking advice well before 2027 could help you make informed decisions and avoid unintended tax consequences. 

As always with tax matters, the earlier you plan, the more options you’re likely to have. It has never been more important to take professional advice about your estate planning. Our team will be happy to discuss, contact us now on 01383 629 720 to arrange an appointment.