ESTATE PLANNING INSIGHTS · INHERITANCE TAX
The 2027 pension changes and your estate
Your pension may still pass outside your Will. But from April 2027, its value could increase the Inheritance Tax liability associated with your estate — and reduce what your family ultimately inherits.
FROM 6 APRIL 2027
The way your pension is inherited may stay the same. The tax calculation may not.
Most unused pension funds and certain pension death benefits will be included when an estate is valued for Inheritance Tax. This could change the position for families who previously believed their estate was comfortably within the available allowances.
What actually changes in April 2027?
At present, many unused pension funds are outside the estate for Inheritance Tax purposes where pension benefits are paid at the scheme trustees' discretion. For deaths on or after 6 April 2027, most unused pension funds and pension death benefits will instead be included in the deceased member's estate valuation for Inheritance Tax.
That does not mean your pension automatically becomes an asset distributed under your Will. For many arrangements, pension scheme trustees or administrators will still decide who receives death benefits under the scheme rules, taking account of any expression of wishes or beneficiary nomination.
Some benefits, including qualifying death-in-service benefits and certain dependants' scheme pensions, remain outside the new charge. The impact will therefore depend on the type of pension and the circumstances of the estate.
Your Will and your pension can remain separate arrangements, while both become relevant to the same Inheritance Tax calculation.
Why could this matter to your family?
A pension that was not previously counted may be the difference between an estate falling within the available Inheritance Tax allowances and one facing a larger liability.
A higher estate value
The taxable estate calculation may now include both your property and other assets and the value of pension benefits brought into scope. This can increase the potential tax bill.
Your home allowance
The Residence Nil Rate Band is gradually reduced once an estate exceeds £2 million. Including pension wealth could push some estates beyond that threshold.
Less left to inherit
A larger Inheritance Tax liability can leave less for children and other beneficiaries. It may also make the estate administration more involved for executors and families.
An estate that looks very different after the change
Consider a fictional example: someone has a home, savings and investments worth £1.85 million, plus an unused pension fund worth £400,000 that will be within the scope of the new rules.
BEFORE 6 APRIL 2027
Estate value for IHT
£1.85m
In this example, the pension is not included in the IHT valuation. The estate remains below the £2 million Residence Nil Rate Band taper threshold.
FOR DEATHS FROM 6 APRIL 2027
Estate value for IHT
£2.25m
When the £400,000 pension is included, the valuation moves above £2 million. If the estate otherwise qualifies for the Residence Nil Rate Band, that allowance could be reduced by £125,000.
Illustration only, not a calculation of tax due. Actual allowances, exemptions, beneficiary arrangements, pension types and any transferred allowances will affect the final position.
This is why simply looking at the value of your home and savings may no longer give the full picture. A family could face additional tax even though their Will and pension beneficiary arrangements have not changed.
Does your Will control your pension?
Usually not, where pension death benefits are payable under a discretionary scheme. The pension will continue to operate under its own rules. An expression of wishes normally guides, but does not bind, trustees making a discretionary payment. Other pension arrangements have different rules, and some benefits can pass directly to the estate.
What changes from April 2027 is the Inheritance Tax treatment of pension wealth brought into scope. Pension benefits may be paid to a named or selected beneficiary while still being included in the deceased person's estate valuation for tax purposes.
Spouse and civil partner exemptions can still be relevant, so not every family with an unused pension will pay more tax. But it is important that the people receiving pension benefits and the people inheriting under your Will are considered as part of a coherent estate plan.
Why reviewing your estate planning now matters
A Will remains the foundation of a well-considered estate plan. It sets out who inherits the assets governed by the Will, who administers the estate and whether protective trust provisions should apply. The pension changes make it even more important to review that planning alongside your wider financial position.
- Understand your potential IHT exposure. Review the combined value of property, savings, investments and any pension benefits likely to be included under the new rules.
- Review what your Will achieves. Consider whether outright inheritance is right for your family or whether suitable Will trusts could provide continuing protection for children and future generations.
- Consider wider lifetime planning. Gifting, available exemptions and suitable lifetime trusts may form part of a wider strategy, depending on your circumstances.
- Keep the arrangements consistent. Pension nominations and expressions of wishes are separate from your Will, so the intended beneficiaries and overall inheritance strategy deserve attention together.
Changes to your Will cannot, by themselves, remove pension benefits from the new Inheritance Tax rules. The value of a review is understanding the whole estate, recognising where risks arise and making informed decisions about the arrangements that remain within your control.
PLANNING BEYOND THE WILL
Has your estate planning kept pace with the changes?
You may have made your Will years ago, when pension wealth was treated differently. From April 2027, a review of your whole estate could reveal an Inheritance Tax exposure you had not previously expected.
During a complimentary consultation, I'll discuss your family circumstances, Wills, protective trusts and wider estate planning, and help you understand where further planning may be appropriate. Pension-specific decisions should be discussed with your pension provider or a suitably qualified financial adviser.
General estate-planning information for England and Wales, prepared October 2026. Rules are scheduled to take effect on 6 April 2027; detailed implementation guidance may be updated. See HMRC's technical note on pensions and IHT and the October 2026 Budget tax legislation summary.