Inheritance tax pension changes 2027: how pension rules will affect your estate

Why the 2027 inheritance tax pension changes matter

From April 2027, inheritance tax rules are changing in a way that could significantly affect how pensions are treated when passed on to your loved ones. For some, pensions have long been viewed as a tax-efficient way to pass on wealth, as they sit outside inheritance tax – until now.

Upcoming inheritance tax pension changes next year are likely to increase tax bills for some families, forcing a rethink of existing estate planning strategies.

This article focuses specifically on how pension rules are changing from April 2027 and what that means for inheritance tax planning.

What is inheritance tax, and what does the 40% threshold mean?

Inheritance tax is charged on the value of the estate you leave when you die. This typically includes property, savings, and investments.  Understanding clearly the current HMRC nil-rate bands will help you to plan. They are:

By bringing pension wealth into this calculation, many families who were previously below the threshold may now find themselves in scope for a 40% tax bill.

Source: HMRC Inheritance Tax guidance

How pensions are currently treated

Under current rules, most defined contribution pensions typically sit outside your estate for inheritance tax purposes, as set out by HMRC.

What’s changing from April 2027?

Unused pension funds will be included within your estate for inheritance tax purposes. This could increase the overall value of estates and bring more individuals into the inheritance tax net.

Source: HMRC consultations

How spouses and partners are affected

When you die, your spouse or civil partner is generally exempted from inheritance tax. However, when your partner dies, that estate may well fall within the range of inheritance tax because the value of any pension has boosted its size.

Source: HMRC spouse exemption rules

Who is most likely to be affected?

You may be affected if you have a significant pension, an estate approaching inheritance tax thresholds, or plans to pass wealth across generations.

What this means for your wider financial plan

These changes dictate how different parts of your financial plan work together, including retirement income, gifting strategies, and estate structures. A more joined-up approach is likely to become increasingly important, and this is what most advisers will emphasise.

What steps can you take now?

It may be sensible to review your pension nominations, consider your overall estate strategy, and ensure your plans reflect your long-term objectives. Again, an adviser can help you understand your options in the context of changing rules.

Taking a more holistic view

Planning for inheritance tax is no longer about individual assets in isolation. It involves understanding how pensions, property, and investments interact within your wider estate and long-term objectives.

Final thoughts

The inheritance tax changes coming in 2027 represent a significant shift, particularly in how pensions are treated. Taking time to review your position can help you stay prepared as the landscape evolves.

Speak to Foster Denovo

If you would like to understand how these changes could affect your estate or your family, you can speak to a Foster Denovo adviser to explore your options in more detail. Book a meeting or email advise-me@fosterdenovo.com

Frequently asked questions

Will all pensions be subject to inheritance tax from 2027?
Not necessarily. The detail will depend on final legislation and individual circumstances.

What happens when I leave everything to my spouse?
Spouse exemptions are expected to remain, but the total estate passed on later may increase.

Are these changes confirmed?
The direction has been outlined, but details may evolve before implementation.

Please note 

This article is for general information only and does not constitute advice. The information is aimed at retail clients only. 

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances. 

This article is for general information only and does not constitute advice. The information is aimed at retail clients only. 

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance. The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.  

The Financial Conduct Authority does not regulate school fees planning. 

The Financial Conduct Authority does not regulate estate planning, tax planning, trusts, Lasting Powers of Attorney, or will writing.