What changes in 2027?

From 6 April 2027, most unused pension funds and certain pension death benefits will generally be included in the value of an estate for Inheritance Tax purposes. This means pension savings may no longer sit outside the inheritance tax calculation, and for some families that could increase the chance of paying tax on amounts passed on after death.

Will pensions face IHT?

Yes, in some cases, pensions may become subject to Inheritance Tax from April 2027 if unused pension funds are counted within the estate and the total value exceeds the available tax-free allowances. The standard Inheritance Tax rate is 40% above the threshold, although exemptions still apply for transfers to a spouse or civil partner and certain other benefits.

Potentially, yes. If a person dies aged 75 or older, beneficiaries may also have to pay Income Tax when they withdraw inherited pension funds. In those cases, the same pension money could be subject to both Inheritance Tax and Income Tax, depending on the estate’s size, the type of pension benefit, and the beneficiary’s circumstances.

What should families do?

Families should review pension beneficiary nominations, estimate the full value of the estate, and consider how pension savings fit into wider inheritance planning before the 2027 changes take effect. It may also be sensible to seek professional advice and look again at lifetime gifting and other estate planning choices, so decisions are made with a clear understanding of the possible tax impact.

Inheritance Tax on pensions: What the 2027 rules mean for your family

CREATED BY ROGER EDDOWES

Published: 22/10/2026 @ 09:00AM

#InheritanceTax #PensionPlanning #PensionInheritance #EstatePlanning #FinancialPlanning

The rules surrounding Inheritance Tax on pensions are changing in 2027, and anyone hoping to leave their pension savings to loved ones should be aware of what lies ahead ...

Inheritance Tax on pensions may affect your family from 2027, so it’s wise to speak to your accountant or tax adviser soon

From 6th April 2027, the value of an estate for Inheritance Tax purposes will include most unused pension funds and certain pension death benefits. This could affect how much family members ultimately inherit.

Understanding these changes is particularly important for
those who have substantial retirement savings!

Previously, most unused pension funds could be passed to beneficiaries without Inheritance Tax. Under the new rules, these funds could push an estate above the available tax-free thresholds, potentially creating an additional tax bill.

Inheritance tax is normally charged at 40% on the value of an estate exceeding the available allowances. The standard tax-free threshold is £325,000, although additional allowances may apply, particularly where a family home passes to qualifying descendants.

From April 2027, HMRC will generally consider unused pension savings alongside property, investments, and other assets when determining whether inheritance tax is payable. Importantly, pension benefits passing to a spouse or civil partner will normally remain exempt from inheritance tax. Certain death-in-service benefits and dependants' pensions will also be excluded.

Could beneficiaries face two tax bills?

Potentially, yes. If someone dies aged 75 or over, beneficiaries may also pay Income Tax when withdrawing inherited pension funds. This means some inherited pensions could face both Inheritance Tax and Income Tax, depending on the circumstances.

However, not every estate will be affected. Many families will remain within the available inheritance tax allowances.

It may be worth reviewing your retirement and estate planning arrangements sooner rather than later. Check pension beneficiary nominations, estimate your estate's value, and consider how pension withdrawals fit into your wider financial plans. Some people may also benefit from reviewing lifetime gifting arrangements too.

The introduction of inheritance tax on pensions in 2027 makes it increasingly important to include retirement savings in your overall estate plan. Take professional advice before the changes take effect, understand your options and avoid unnecessary surprises.

Then you can make informed decisions about protecting your family's financial future.

Until next time ...

ROGER EDDOWES
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If anything I've written in my blog post resonates with you and you'd like to discover more of my thoughts about these changes to Inheritance Tax on pensions in 2027, then do call me on 01908 774320 and let's see how I can help you.

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About Roger Eddowes ...

Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach.

Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.

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Inheritance Tax on pensions: What the 2027 rules mean for your family

Understanding these changes is particularly important forthose who have substantial retirement savings!

Inheritance tax is normally charged at 40% on the value of an estate exceeding the available allowances. The standard tax-free threshold is £325,000, although additional allowances may apply, particularly where a family home passes to qualifying descendants.

Could beneficiaries face two tax bills?

However, not every estate will be affected. Many families will remain within the available inheritance tax allowances.

Understanding these changes is particularly important for
those who have substantial retirement savings!