Pensions & Inheritance Tax from April 2027: what the changes mean for your family’s financial plan
From 6 April 2027, most unused pension funds and death benefits will be brought into scope of Inheritance Tax (IHT) and counted in the estate on death. The government has also confirmed that death-in-service benefits will be excluded, and that personal representatives (executors), not pension scheme administrators, will handle any IHT reporting and payment on pension death benefits.
A quick bit of context (and balance)
Before the 2015 pension reforms, a widely-criticised 55% “death tax” could apply to certain pension lump sums on death. So, the idea of pensions being taxed at death isn’t entirely new, what’s new is how and when the IHT rules will apply from 2027.
Why this matters now
IHT thresholds are frozen until 2030 (standard £325,000 nil-rate band and £175,000 residence nil-rate band, with tapering from £2m). With house prices having risen over time, more families are being drawn into IHT (known as fiscal drag), and bringing pensions into the IHT net from 2027 increases the odds that individuals who’ve carefully built their pension wealth will be affected.
What’s changing from April 2027
In scope: Most unused pension funds and pension death benefits will be included in the estate for IHT. This applies even where trustees/administrators have discretion over who receives benefits.
Out of scope: Death-in-service benefits from registered schemes are excluded.
Who pays/reports: Your executors will report and pay any IHT linked to pension death benefits as part of the overall estate process.
Note: The government’s policy and draft legislation set the framework; detailed processes will continue to be clarified before April 2027. (GOV.UK)
Who might be most impacted?
Property-rich, cash-lighter estates whose overall values already sit near IHT thresholds.
Families who have intentionally preserved pensions (formerly IHT-efficient) while spending other assets.
Estates with multiple pensions or larger pension pots built over long careers.
Practical steps to consider
Update nominations and check pension scheme rules so benefits go where intended.
Re-run your cashflow plan: you may want a different balance between drawing ISAs/taxable accounts vs pensions during retirement.
Weigh survivorship planning: life cover written in trust can provide liquidity to meet IHT without forced sales. (Insurance doesn’t reduce IHT; it funds it. Acceptance/premiums depend on underwriting and affordability.)
Coordinate wills & letters of wishes with legal advice so your overall estate plan still works under the new rules.
In all of the above cases, it is wise to seek personalised advice.
How ERF can help
At Ella Rose Financial, we’ll keep the focus on your family’s picture, not the headlines. We’ll model your likely IHT exposure under the 2027 rules, test different drawdown and gifting strategies, review nominations and beneficiary structures, and working with your solicitor we help you align wills, trusts and protection so loved ones aren’t forced to sell the family home or long-term investments at an inopportune time.
Important
This article is information only, not personal advice. Always obtain professional advice.
Investments carry risk.
Tax and trust rules can change and depend on your circumstances.
The Financial Conduct Authority does not regulate Tax Advice or Will writing.
The information enclosed in this blog is based on current HMRC guidance and legislation which can change