Pensions & Inheritance Tax from April 2027:
What Families and Business Owners Need to Decide Before the Rules Change
For two decades, pensions have sat outside the inheritance tax net. From 6 April 2027, that ends. Here's what's actually changing — and the questions worth answering before the deadline.
For most of the last twenty years, a pension was the most tax-efficient way to pass wealth to the next generation. Money left inside a pension on death passed outside the estate, free of inheritance tax. For families with substantial pension wealth, this single rule shaped a generation of retirement and estate planning decisions.
From 6 April 2027, that changes. Unused pension funds and death benefits will be brought within the estate for IHT purposes. The 40% rate will apply above the available nil-rate bands. For many families, money they had assumed would pass to children largely intact will now be reduced — sometimes significantly — by tax that did not exist when the planning was put in place.
What's Actually Changing
Unused pension funds at death will be added to the estate for IHT, whether the pension is a defined contribution scheme, a SIPP, or certain other arrangements. The combined estate is assessed against the available nil-rate bands (£325,000 per person, plus up to £175,000 of the residence nil-rate band where applicable).
Death benefits paid from pension schemes will, in most cases, also fall within the IHT calculation. Income tax on pension death benefits remains separate — meaning larger pensions can now be reduced by IHT on the way out of the estate and income tax on the way into the beneficiary's hands.
Who This Affects Most
Three groups are most exposed:
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Families who deliberately preserved pension wealth for the next generation under the old rules.
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Business owners with significant SIPP or SSAS balances built up for tax-efficient succession.
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Anyone whose total estate, with the pension now included, crosses into IHT territory for the first time.
Questions Worth Answering Before April 2027
Is the order of drawdown still right?
Many families have been drawing from non-pension assets first to preserve the pension. From 2027, the calculus will shift.
Are the death benefit nominations still appropriate?
Nominations made on the old assumptions may direct money in ways that no longer minimise tax overall. This is one of the cheapest and most commonly overlooked things to review.
Has the wider estate plan been recalculated?
Wills, trust structures, and life cover were often designed around an estate value that excluded the pension. The headline numbers need to be revisited.
Is there a case for accelerated gifting?
For some families, bringing forward planned gifts becomes more attractive when the alternative is having taxed pension wealth in the estate, especially when using the seven-year rule, the annual exemptions, or the normal-expenditure-out-of-income exemption.
What Not To Do
Do not rush. The change takes effect from April 2027, not immediately. Decisions made hastily in the next twelve months are the ones most likely to be regretted.
Do not act on a single piece of advice in isolation. Pensions, tax, and estate planning intersect in ways that mean a decision sensible in one frame can be costly in another.
Where This Leaves Things
For families and business owners who have been planning carefully for years, the April 2027 change is not a crisis — but it is a reason to revisit. Plans made under the old rules deserve a fresh look under the new ones. For most, the structural answer will involve a combination of revised drawdown sequencing, updated nominations, refreshed estate documents, and — in some cases — earlier use of trusts and lifetime gifts than the old rules required.
The families and business owners who do best with changes like this are the ones who treat the deadline as a prompt to think clearly, not as a reason to act quickly. There is a meaningful difference between the two.
Wills, Tax & Trusts Ltd. advises high-net-worth families, business owners, and professional advisers on estate planning, inheritance tax, and trust structures. A STEP-qualified practitioner leads every matter, and a partner reviews it before release. If the April 2027 changes have prompted questions about your own arrangements or those of a client, we offer an initial conversation to scope what — if anything — needs to be reviewed.
