Pensions & UK inheritance tax from 2027
The inheritance-tax treatment of pensions changes materially for deaths on or after 6 April 2027.
Most unused pension funds and pension death benefits will be brought within the value of the deceased member's estate for inheritance-tax purposes.
For clients who have deliberately preserved pension wealth for future generations, that can alter the role the pension plays within the wider retirement and estate plan.
Josh Clancey works alongside tax advisers, private-client lawyers, pension specialists and other professionals where the 2027 changes create wider financial-planning decisions around retirement income, investments, beneficiaries and estate liquidity.
The pension can no longer be considered separately from the estate
Historically, discretionary pension death benefits have often sat outside the member's estate for inheritance-tax purposes.
For deaths on or after 6 April 2027, the position changes.
Finance Act 2026 has legislated for most unused pension funds and pension death benefits to be included in the deceased member's estate, regardless of the previous distinction between discretionary and non-discretionary arrangements.
This means advisers may need to reconsider:
- how much pension wealth the client retains
- which assets are used to fund retirement spending
- beneficiary nominations
- estate liquidity
- life assurance
- investment withdrawals
- the interaction with other assets
- the client's UK inheritance-tax residence position
The tax and estate-planning advisers should establish the inheritance-tax consequences.
Financial planning can then consider whether the client's retirement strategy still makes sense.
Common planning areas after the 2027 changes
Unused defined contribution pensions
Unused pension funds that previously may have passed outside the estate can become relevant to the inheritance-tax calculation from 6 April 2027.
Pension death benefits
Most pension death benefits will also come within the estate for inheritance-tax purposes under the new regime.
The detailed treatment should be established before recommendations are made.
Beneficiary nominations
Expression-of-wish forms and nominations remain relevant to who ultimately receives pension benefits, even though trustee discretion will no longer determine whether the pension falls within the IHT regime.
Estate liquidity
A larger taxable estate can create greater demand for accessible capital.
The client's cash, investments, insurance and other liquid assets may therefore need to be reviewed alongside pension wealth.
Overseas clients
An internationally resident pension member may also need to consider whether they remain within the UK's inheritance-tax net under the long-term residence rules.
Retirement withdrawals
Where pensions are no longer treated as uniquely advantageous from an inheritance-tax perspective, the order in which a client uses pensions and non-pension assets may need to be reconsidered.
Questions to ask before changing the client's retirement strategy
How much unused pension wealth is likely to remain on death?
The significance of the reform will vary materially depending on the client's projected pension balance.
Who are the intended beneficiaries?
Beneficiary circumstances can affect the wider estate and retirement-planning strategy.
What other assets form part of the estate?
Property, investments, cash and business interests should be considered alongside pension wealth.
Does the client actually need to preserve the pension?
A strategy built around leaving the pension untouched may need to be reassessed once the 2027 rules take effect.
Is the client still within the UK inheritance-tax net?
For internationally mobile clients, the long-term residence rules need to be considered separately.
Is there sufficient estate liquidity?
The family may need accessible capital to meet liabilities without forcing the sale of less-liquid assets.
Would changing withdrawal sequencing improve the overall plan?
This should be tested using cash-flow modelling rather than assuming the pension should always be spent last.
Professional resources on pensions & inheritance tax
The Document Centre includes technical briefs, professional guides and practical checklists covering pension death benefits, the 2027 inheritance-tax changes, long-term UK residence, beneficiary planning, international estates and overseas pension holders.
Useful resources for advisers reviewing pensions after 2027
UK Pensions and Inheritance Tax From 2027
A focused technical brief covering the change to the inheritance-tax treatment of unused pension funds and pension death benefits.
Pension Death Benefits, Nominations and Wills
A technical resource covering pension beneficiary arrangements and their interaction with wider estate planning.
The Professional Adviser's Guide to UK Pensions for International Clients
A broader guide covering UK pension planning for clients living or retiring internationally.
Long-Term Residence and UK Inheritance Tax
A technical brief covering the separate residence framework used to determine the scope of UK inheritance tax.
Pension and Beneficiary Coordination Checklist
A practical checklist for reviewing pension nominations and wider beneficiary arrangements.
International Estate Planning Coordination Checklist
A broader checklist for reviewing assets, beneficiaries, pensions and estate liquidity across jurisdictions.
The reform applies to deaths on or after 6 April 2027
The operative date is important.
HMRC confirms that the new treatment applies where the pension scheme member dies on or after 6 April 2027.
If the member dies before that date, the existing rules apply even where the pension benefits are not actually paid to beneficiaries until after 6 April 2027.
The reform covers most unused pension funds and pension death benefits.
There are exceptions.
HMRC confirms that death-in-service benefits from registered pension schemes are excluded from the new inheritance-tax treatment, as are certain dependant scheme pensions and continuing annuity arrangements.
That means the phrase "pensions become subject to IHT in 2027" is too broad.
The exact type of pension benefit still matters.
This is a retirement-planning change as well as an estate-planning change
The reform may change a strategy that has become common in retirement planning:
spend taxable assets first and preserve the pension for beneficiaries.
That approach may still be appropriate in some cases.
But from April 2027, inheritance tax can become another factor in determining which assets should be used during the client's lifetime.
The wider analysis may include:
- income-tax treatment of withdrawals
- inheritance tax
- available allowances
- investment growth
- longevity
- required retirement income
- beneficiary objectives
- the client's age and health
- the inheritance-tax treatment of non-pension assets
- residence and international estate issues
There should therefore be no automatic response such as withdrawing a pension simply to avoid inheritance tax.
The correct strategy needs to be tested across the client's full financial position.
When should the referral happen?
A referral can be useful where the client:
has substantial unused pension wealth
has deliberately preserved pensions for children or other beneficiaries
is approaching retirement
has significant non-pension investments
has an inheritance-tax exposure
lives outside the UK
is considering changing pension withdrawals because of the 2027 reform
needs to review life assurance or estate liquidity
The objective is to determine whether the client's retirement and estate strategy remains appropriate under the new rules.
Have a client whose pension strategy may change from April 2027?
If a client has substantial pension wealth, inheritance-tax exposure or a retirement strategy built around preserving pensions for beneficiaries, an initial discussion can help establish how the financial plan should adapt alongside the tax and estate-planning advice.