For many years, pensions have often sat outside an individual’s estate for inheritance tax purposes.
That has made pensions an important part of wider estate planning, particularly for families with significant pension assets.
However, from 6 April 2027, the inheritance tax treatment of many unused pension funds and death benefits is due to change.
For some families, this could materially increase the inheritance tax exposure of their estate.
What is changing in April 2027?
Under the Government’s planned changes, most unused pension funds and death benefits are due to be brought within the scope of inheritance tax from 6 April 2027.
This means that when assessing the potential inheritance tax position of an estate, pension wealth may need to be considered alongside property, investments, cash and other assets.
For someone with a substantial pension, the difference could be significant.
A family that previously believed its estate was comfortably within its available inheritance tax allowances could find that the position looks very different once pension assets are included.
Why your pension needs to be considered as part of your estate
One of the problems with estate planning is that assets are often looked at individually.
The pension adviser looks at the pension. The investment adviser looks at the portfolio. The solicitor prepares the will.
But inheritance tax ultimately depends upon how the different parts of the estate interact.
For example, somebody might have:
a £1 million property;
£500,000 of investments and savings; and
a £750,000 pension.
Historically, they may have focused primarily on the £1.5 million of property, investments and savings when considering inheritance tax.
If the pension becomes part of the inheritance tax calculation, the wider position could potentially look very different.
Larger estates may face an additional problem
The issue is not necessarily limited to the tax potentially payable on the pension itself.
For estates above certain levels, the Residence Nil Rate Band can begin to taper away.
That means bringing additional pension wealth into the inheritance tax calculation could potentially affect the availability of other allowances as well.
This is why simply calculating 40% of a pension fund does not necessarily tell you the full story.
The estate needs to be considered as a whole.
Does this mean you should withdraw your pension?
Not necessarily.
Taking money from a pension purely because the inheritance tax rules are changing could create other tax, investment and retirement-planning consequences.
For some people, leaving money inside the pension may continue to make sense. For others, the changing rules may justify reviewing how their pension fits into their wider estate.
The important point is not to make decisions about one asset in isolation.
Before changing pension arrangements, the consequences for income tax, retirement income, investment strategy, beneficiaries and the wider estate should all be considered.
Where regulated pension or investment advice is required, this should be obtained from an appropriately authorised professional.
Why waiting until 2027 may be a mistake
The new rules are due to take effect from 6 April 2027, but that does not necessarily mean April 2027 is the right time to start looking at the issue.
Estate planning can involve several moving parts.
Pension arrangements may need to be reviewed. Beneficiary nominations may need checking. Property, investments, wills, trusts and existing estate-planning arrangements may also need to be considered.
Some planning strategies also require time before they become fully effective.
The sensible starting point is therefore to understand the position before deciding whether anything needs to change.
Questions worth asking now
If you have a significant pension, consider asking:
What is my estate currently worth?
What could my inheritance tax exposure be after April 2027?
Could including my pension affect my available inheritance tax allowances?
Are my pension beneficiary nominations up to date?
How does my pension interact with my will and wider estate plan?
Would my beneficiaries have sufficient liquidity to meet any inheritance tax liability?
Have my existing arrangements been reviewed in light of the 2027 changes?
You may discover that very little needs changing.
But you may also discover that an estate plan created several years ago is based upon pension rules that will no longer apply.
The starting point is understanding your position
The April 2027 changes do not mean everyone should restructure their pension.
They do mean that pensions should increasingly be considered alongside the rest of the estate when assessing potential inheritance tax exposure.
Property, pensions, investments, wills, beneficiary arrangements and family circumstances can all interact.
Understanding those connections before taking action can help identify where genuine vulnerabilities exist — and where they do not.
Could the April 2027 Changes Affect Your Estate?
The inheritance tax treatment of pensions is changing, and families with substantial pension wealth may need to reconsider how their pension fits into their wider estate planning.
Understanding the potential impact before the new rules take effect gives you more time to assess your position.