Inheritance Tax and Pensions: What the 2027 Changes Mean for Your Estate
From 6 April 2027, one of the biggest changes to UK inheritance tax planning for many years is due to take effect: most unused pension funds and pension death benefits will come within the scope of Inheritance Tax.
For many people, this changes the way an estate should be planned.
For years, pensions have often been an important part of estate planning because unused pension funds could potentially pass to beneficiaries outside the normal IHT estate, depending on the type of pension and the circumstances. From April 2027, that planning opportunity will be significantly reduced.
HMRC has confirmed that, from 6 April 2027, most unused pension funds and death benefits will be included when calculating the value of an estate for IHT purposes.
Why does this matter?
Imagine someone dies (second spouse) owning a home worth £600,000, investments and savings of £300,000 and a pension worth £500,000.
Under the rules applying before April 2027, the pension may not necessarily have formed part of the estate for IHT purposes.
From April 2027, however, the pension may be brought into the calculation.
That could make the difference between an estate falling below the available allowances and an estate becoming liable to inheritance tax.
The standard rate of IHT remains 40% on the taxable portion of an estate.
Does everyone with a pension need to worry?
No.
The government estimates that most estates will still have no IHT liability after the pension changes. However, HMRC estimates that around 10,500 estates could have an IHT liability where previously they would not, while approximately 38,500 estates could pay more IHT than under the previous treatment.
The important point is therefore not simply whether you have a pension.
It is the overall value and structure of your estate.
Your home, savings, investments, business interests, agricultural property, gifts and pension benefits may all need to be considered together.
What should you do now?
If you have a substantial pension, it may be time to review your estate plan.
That does not automatically mean withdrawing money from your pension. In fact, taking money out simply to avoid a future IHT charge could create other tax and investment consequences.
Instead, consider the bigger picture.
Who will inherit your pension?
Who will inherit your home?
Have you used your available IHT allowances?
Have you made lifetime gifts?
Could a trust be appropriate?
Are your pension beneficiary nominations up to date?
And does your Will still reflect what you actually want to happen?
Why professional estate planning matters
The changes demonstrate why estate planning cannot be treated as a one-off exercise.
A Will written several years ago may still be legally valid but no longer produce the result you expect when tax legislation changes.
For clients in Norfolk, Dereham and Norwich, a review of the whole estate can help identify where the risks and opportunities now lie.
The April 2027 pension changes make this particularly important for anyone with significant pension wealth.
The WillMaker Group provides professional Will writing and estate planning advice across Norfolk. If your pension forms a significant part of your wealth, now is a good time to review how it fits into your wider estate plan.
This article is general information and does not constitute individual tax or financial advice. Pension and inheritance tax rules can change and individual circumstances differ.