For years, pensions have occupied a particular position in many estate plans. Inheritance Tax on Pensions 2027 .

Use other assets during retirement. Preserve the pension where appropriate. Nominate beneficiaries. Potentially pass the remaining pension wealth to the next generation outside the estate for Inheritance Tax on Pensions 2027 purposes.

From 6 April 2027, that assumption changes significantly.

Most unused pension funds and pension death benefits will be brought within the value of a deceased person’s estate for UK Inheritance Tax purposes.

And this is no longer simply a proposal. The changes were legislated for in Finance Act 2026, and HMRC has been publishing the regulations and technical details needed to make the new system operate from April 2027.

On 27 August 2026, HMRC published its second technical note explaining more about how the new pension Inheritance Tax regime will work.

For families with significant pension wealth, the question is therefore changing. It is no longer simply: Will pensions become subject to Inheritance Tax? It is increasingly: How should my wider estate plan change before they do?

What is changing to Inheritance Tax on pensions in 2027?

For deaths occurring on or after 6 April 2027, most unused pension funds and pension death benefits will be included when calculating the value of a person’s estate for Inheritance Tax.

This represents an important departure from the current treatment of many discretionary pension schemes. At present, unused funds in many discretionary pension arrangements can generally pass to beneficiaries without being included in the deceased member’s estate for IHT. From April 2027, most of that inheritable pension wealth will instead be brought into the estate calculation.

That does not mean every pension will suddenly suffer a 40% tax charge. Inheritance Tax still depends on the overall circumstances of the estate, the available nil-rate bands, exemptions, reliefs and who ultimately receives the assets.

But it does mean that an asset many families may previously have considered separately from their estate will need to be considered alongside their property, investments, cash and other wealth. For larger estates, that can materially alter the calculation.

How many estates could be affected?

HMRC’s own estimates illustrate the potential scale. It estimates that approximately 213,000 estates will contain inheritable pension wealth in 2027-28.

Of those, approximately 10,500 estates are expected to become liable for Inheritance Tax where they would not previously have had a liability, while around 38,500 estates are expected to pay more IHT.

Among affected estates, HMRC estimates that the average IHT liability could increase by around £34,000 when pension assets are included.

Importantly, HMRC says these are static estimates. They do not account for people changing their behaviour or estate planning before the rules take effect, so the projections should be viewed as an upper limit rather than a prediction of precisely what will happen.

That final point matters. The rules are changing, but individuals still have time to understand how the change affects their particular circumstances.

The pension may no longer be separate from the estate

Consider why this matters from an estate-planning perspective.

Someone might own a home, an investment portfolio, cash deposits, other property and a substantial pension.

Historically, their estate-planning strategy may have treated the pension differently from those other assets. The pension might have been preserved while cash and investments were spent during retirement.

That decision could have made sense partly because unused discretionary pension wealth could potentially pass outside the estate for IHT purposes.

From April 2027, preserving the pension simply because it sits outside the IHT estate will no longer provide the same rationale in many cases.

That does not automatically mean the pension should be spent first. It means the relationship between the pension and every other asset deserves reconsideration.

Why simply withdrawing your pension may not solve the problem

One reaction to the new rules might be: Should I simply take the money out of my pension before April 2027?

That is rarely a question that should be answered in isolation. If pension money is withdrawn and simply moved into a bank or investment account owned personally, it may remain within the individual’s estate anyway.

Depending on the withdrawal and the individual’s circumstances, there may also be Income Tax and investment consequences.

The new rules therefore do not create a universal instruction to empty pensions. Instead, they make asset sequencing more important.

Which assets should fund retirement expenditure? Which assets should potentially be retained? Are lifetime gifts appropriate? How should pension nominations interact with a will? How much liquidity might an estate need? And how do those decisions interact with the individual’s tax residence and wider family circumstances?

Those are estate-planning questions, not simply pension questions.

Who will be responsible for dealing with the tax?

This is one area where the government’s approach changed during the consultation process.

The original proposal placed more responsibility on pension scheme administrators. Under the final structure, personal representatives will generally be responsible for reporting and paying the Inheritance Tax attributable to unused pension funds and pension death benefits.

That creates a practical issue. The personal representatives administering the estate need information about the pension. The pension administrator needs information relating to the estate and beneficiaries. HMRC therefore needs a system through which information can move between all the relevant parties.

The information-sharing regulations required to support that process were laid in July 2026, and HMRC’s August technical note provides further information about how the process is intended to operate.

For families, this highlights something often overlooked in estate planning: administration matters as well as tax.

A theoretically efficient estate plan can still cause considerable difficulty if executors cannot locate assets, establish pension arrangements or identify the relevant beneficiaries.

HMRC has introduced a mechanism to help pay the tax

The new system also recognises a potential cash-flow problem.

Imagine an estate owes IHT partly because a substantial pension has now been included in its value. The personal representatives may need to pay the tax before pension benefits have been distributed.

Under the new rules, where personal representatives reasonably expect IHT to be due, they will be able to instruct a pension scheme administrator to withhold 50% of taxable pension benefits for up to 15 months from the date of death.

They can subsequently direct the scheme administrator to pay the IHT attributable to those pension benefits directly to HMRC before the balance is released to beneficiaries.

There are exceptions, including exempt benefits, funds below £1,000 and continuing annuities.

This is an administrative mechanism rather than a new tax allowance, but it may become important for executors dealing with estates containing significant pension wealth.

Are all pension death benefits affected?

No. The rules contain important exclusions.

In particular, death-in-service benefits payable from registered pension schemes will remain outside the estate for IHT purposes. Certain dependant’s scheme pensions from defined benefit and collective money purchase arrangements are also outside the new rules.

The treatment of a particular pension therefore depends on the type of benefit involved. This is another reason not to reduce the reform to the statement that all pensions will be subject to IHT. They will not.

What about pensions left to a spouse or civil partner?

The existing spouse and civil-partner exemption remains highly relevant. The legislation maintains the existing IHT principles for qualifying pension death benefits passing to a surviving spouse or civil partner.

That means the immediate IHT position can be very different depending on who receives the pension benefits.

However, transferring wealth to a surviving spouse does not necessarily remove that wealth from the family’s longer-term estate-planning considerations. It can defer the issue to the survivor’s estate.

For couples with significant combined pensions, property and investments, planning therefore needs to look beyond the first death.

Why beneficiary nominations still matter

The fact that a pension may enter the IHT calculation does not make pension nominations irrelevant. Far from it.

Beneficiary nominations can still influence who pension trustees or administrators consider when distributing benefits and should form part of the wider estate plan.

The important point is that nominations, wills and the ownership of other assets should not be reviewed separately.

A pension nomination written years ago may no longer reflect the current family structure, where beneficiaries live, the value of the pension, the rest of the estate, the individual’s wishes or the tax environment that will exist from April 2027.

The pension reform provides a useful reason to review those arrangements now rather than waiting until the rules have already changed.

What does this mean for British expatriates?

For internationally mobile families, the position can be more complicated.

Whether an individual’s worldwide estate falls within UK Inheritance Tax can depend on the UK’s long-term residence rules, which replaced the former domicile-based system from April 2025.

The pension reform therefore needs to be considered alongside the individual’s residence history and the location and ownership of their wider assets.

HMRC has indicated that further technical material will continue to be published ahead of implementation. Internationally mobile pension holders should therefore avoid relying on simplified assumptions and review the position as the remaining guidance develops.

Carey Suen will continue to monitor those developments.

Five questions worth asking before April 2027

1. 1. What is my pension currently worth? For someone who has accumulated pensions over several decades, the total value may be substantially greater than the figure they have in mind.
   2. What would my estate be worth if my pension were included? Look at the pension alongside property, investments, cash and other assets rather than separately.
   3. Who are my current pension beneficiaries? Old nominations deserve reviewing after marriages, divorces, deaths, births and other significant family changes.
   4. Does my existing retirement withdrawal strategy still make sense? A strategy designed when the pension sat outside the estate may need reconsidering when the underlying tax assumptions change.
   5. Does my wider estate plan still work? Pensions, wills, investments, property ownership and succession planning should work together rather than as separate pieces.

The purpose of reviewing an estate plan is not to react to a tax change in isolation. It is to understand whether the assumptions on which the existing plan was built are still valid.

April 2027 is closer than it looks

The important date is 6 April 2027. But that does not mean April 2027 is the date to begin thinking about the change.

Pension values need to be established. Beneficiary nominations may need reviewing. Estate values need to be modelled. Wills and other estate-planning documents may need checking.

And internationally mobile individuals may need to understand how the pension reforms interact with their residence history and cross-border arrangements.

For years, preserving pension wealth could form an important part of a family’s estate-planning strategy. From April 2027, the tax assumptions behind that strategy are changing.

The right response is not necessarily to withdraw the pension, spend it or restructure everything. It is to establish whether the plan you already have still achieves what you intended it to achieve.

Review your pension and estate plan

Carey Suen works with internationally mobile individuals and families to review their wealth, pension and estate-planning arrangements as circumstances and legislation change.

If you hold significant UK pension wealth and want to understand how the April 2027 changes could affect your wider estate, book a Discovery Call with Carey Suen.

This article is for general information only and does not constitute tax, legal or investment advice. Individual circumstances differ and professional advice should be obtained where appropriate.

Sources

• HMRC: Inheritance Tax on Pensions – Technical Note 2 (27 August 2026)
• HMRC: Inheritance Tax – unused pension funds and death benefits (26 November 2025)
• HMRC: Reforming Inheritance Tax – unused pension funds and death benefits (21 July 2025)