Pension Inheritance Tax (IHT) from April 2027: What the Change Means for You and Your Family

From 6 April 2027, the way pensions are treated for Inheritance Tax in the UK is changing. If you are aged 50 + and have built up a meaningful pension, then this change in pensions and inheritance tax will likely affect you. This first article in our three-part series explains, in plain English, what is actually happening and who it touches.

Due to the scale of the issue, we are writing three articles and this is the first of the three articles.

Picture this. You are 68 years old. You have lived in Fleet, or perhaps on a quiet road outside Guildford, for the last twenty years. Your home is paid off, the kids have flown the nest, and a lifetime of disciplined saving has produced a pension pot of around £600,000. Like almost everyone you know, you have always assumed that your pension would pass to your children without any inheritance tax.

From 6 April 2027, that assumption no longer holds.

The change being phased in by HM Treasury is one of the biggest shifts in pension and estate planning in a generation. It is anticipated that this will affect 10,500 households in the UK, where previously they would not have had an IHT liability[1]. It will affect tens of thousands of households regardless of if you are in Hampshire, Surrey, Berkshire or London.

What is actually changing on 6 April 2027?

Today, when you die, most defined-contribution pensions can be passed to your loved ones outside of your estate for IHT. That has made pensions one of the most tax-efficient ways of passing on wealth in the UK. People often spend their other savings first and leave the pension untouched precisely because it sat outside the Inheritance Tax net.

From 6 April 2027, that quietly stops being true.

Most unused defined contribution pension funds, and most lump sum death benefits paid from pensions, will be brought inside your estate for Inheritance Tax purposes. Simply, imagine you thought you were just under the inheritance nil rate band but had a pension left over when you died, this could be brought in, costing 40% tax on the value of it, reducing what your loved ones receive.

The two thresholds that decide your bill

Two allowances matter for almost every family in our part of the country:

• The nil-rate band - £325,000 per person.
• The residence nil-rate band - up to £175,000 per person, available when you pass your main home to direct descendants. This reduces for estates above £2 million – technical and you need to speak with someone if this affects you.

A married couple passing their estate to their children may therefore have up to £1 million of combined nil-rate band. Above that, Inheritance Tax is charged at 40%. House prices in Fleet, Farnham, Guildford, Wokingham and large parts of London mean that many couples in our region are already much closer to that £1 million ceiling than they realise. This is even before their pension joins the calculation.

Who this affects and who it does not

You are most likely to be affected if the following apply:

• You hold a defined contribution pension: a personal pension, SIPP, drawdown pot, or workplace DC pension.
• Your total estate, including the pension, is likely to exceed the nil-rate bands available to you.
• You expect to leave the bulk of your wealth to children, grandchildren or other non-spouse beneficiaries.

You are less likely to be affected if:

• You are leaving everything to your spouse or civil partner. The spousal exemption rules remain unchanged as assets passing between spouses on death remain free of Inheritance Tax. However, when the second person passes, this issue remains.
• You are leaving your pension to a UK-registered charity. Charitable bequests remain Inheritance Tax-free.
• Your estate, with the pension included, falls comfortably below your nil-rate bands.

If you are in one of those exempt situations, this series is still worth reading because circumstances change, and the surviving spouse will eventually face the question on their own.

Why we are writing about this now

The single biggest risk we are seeing in our conversations with clients is not the tax itself. It is people not realising the rules have changed until it is too late to do anything useful about them. The families that protect the most wealth tend to be the ones that sit down early, run the numbers on their own situation, and decide calmly what, if anything,  to do.

We believe it is so important for families to sit down together and discuss their personal situation and their intentions for passing wealth on to the next generation.

The good news is that there is still time. The less-good news is that the window is closing. In the next article in this series, we look at how to work out the personal impact on your family, including a worked example for a couple in Fleet that brings the numbers to life.

Common questions

Will my spouse still inherit my pension free of inheritance tax?

Yes. The spousal exemption is unchanged. Anything passed between spouses or civil partners on death remains free of Inheritance Tax. The 2027 changes mainly affect what is left to children, grandchildren and other non-spouse beneficiaries.

Does this apply to defined benefit (final salary) pensions?

Most defined benefit lump-sum death benefits will also be brought into the estate. Ongoing dependant’s pensions paid as income are treated differently and do not form part of the estate for Inheritance Tax.

I do not live in Fleet, does this still apply?

Yes. We used Fleet just as an example. The rules are UK-wide. We have written this series with families in Hampshire, Surrey, Berkshire and London in mind because that is where most of our clients live but the change applies whether you are in Reading, Basingstoke, Guildford, Woking, Bracknell, Camberley, Farnborough or central London.

Your next step

If you would rather not wait for parts 2 and 3 to find out where you stand, we offer a no-obligation initial conversation for people aged 50+ in Hampshire, Surrey, Berkshire and London. We will look at your pension, your wider estate, and your wishes for the people you love and explain, in plain English, whether the 2027 changes are likely to affect you.

No jargon. No pressure. Just clarity.

Book your no-obligation 2027 IHT review.

Your three-part series on Pension Inheritance Tax 2027

1. Part 1 (this article): What the April 2027 change means for you and your family.
2. Part 2 (June): Understanding the personal impact: the maths, the double-tax trap, and a worked example.
3. Part 3 (July): Five strategies to reduce the impact for you and your family.

Important information

The information in this article is based on our understanding of UK legislation and HMRC practice as at May 2026, which may change in the future. 

The levels and bases of taxation, and reliefs from taxation, can change at any time and are dependent on individual circumstances. 

This article is for general information only and does not constitute personal financial advice. 

Although the content of the article was correct at the time of writing, the accuracy of the information should not be relied upon, as it may have been subject to subsequent tax, legislative or event changes.

[1] https://www.gov.uk/government/publications/reforming-inheritance-tax-unused-pension-funds-and-death-benefits/inheritance-tax-on-unused-pension-funds-and-death-benefits