What the April 2027 change could mean for your pension

What's changing

At the moment, most unused pension money sits outside your estate for inheritance tax (IHT). If you die with money left in a defined contribution pension, it can usually pass to your beneficiaries without IHT.

The government has confirmed that from 6 April 2027, most unused pension funds and death benefits will be counted as part of your estate when working out IHT. The standard IHT rate is 40% on the part of an estate above the available allowances.

Who it could affect

The change matters most if your pensions plus everything else you own (your home, savings, investments and possessions) could come to more than your IHT allowances. For most people these are:

the nil-rate band: £325,000 per person
the residence nil-rate band: up to £175,000 more when you leave your home to children or grandchildren (this tapers away for estates over £2 million)

Unused allowances can usually pass to a surviving spouse or civil partner. That means a couple could pass on up to £1 million before IHT is due. Both allowances are currently frozen, so as property and pension values grow, more estates are being caught.

What stays the same

Spouses and civil partners. Anything you leave to your spouse or civil partner is still generally free of IHT, including pension money.
Death-in-service benefits from a workplace scheme are expected to stay outside the new rules.
Income tax for beneficiaries. If you die before 75, beneficiaries can usually take inherited pension money free of income tax. If you die at 75 or over, they pay income tax at their own rate on what they withdraw. From April 2027, some inherited pensions could face both IHT and income tax.

Passing on your pension: things worth checking

Your nominations

Most pension schemes let you name who you'd like to receive your pension when you die, often called an expression of wishes or nomination. These are easy to forget. If yours was filled in years ago, it may not reflect your family today.

The total value of your estate

Add up roughly what you own, including all your pensions. If the total is near or above your allowances, the change could affect what your family receives.

The order you draw on your savings

Many people were told to spend other savings first and leave pensions untouched, because pensions were IHT-free. After April 2027 that may no longer be the best order for everyone.

Gifting and your will

Regular gifts from surplus income, using your annual gift allowances, and keeping your will up to date can all play a part in estate planning.

This is general information, not advice. The right approach depends on your circumstances. Moving money around for tax reasons can have other consequences. An FCA-regulated adviser can look at your whole picture, and estate planning may also involve a solicitor.

Where to find out more

GOV.UK: Inheritance Tax
Pension Wise: free, impartial guidance if you're 50 or over