Pensions and inheritance tax: what is changing in April 2027

A quiet change announced by HMRC will reshape estate planning for thousands of families. From 6 April 2027, most unused pension funds and pension death benefits will be counted as part of your estate for inheritance tax purposes. Until now, pensions have generally sat outside your estate, which made them one of the most tax-efficient ways to pass on wealth. That assumption is about to stop being true.

Why this matters in plain terms

Inheritance tax is charged at 40 per cent on the part of an estate above the tax-free threshold, which for most people is £325,000, with an extra allowance available when a home passes to children or grandchildren. Because pensions were excluded, many people deliberately spent other savings first and preserved their pension as an inheritance. From April 2027 that pension pot will usually be added to everything else. Estates that comfortably sat below the threshold may now sit above it, and families who expected no inheritance tax bill may face one.

Who should take this seriously

Three groups in particular. People with substantial pension savings who planned to pass them on. Unmarried couples, because the spouse exemption that softens inheritance tax for married couples and civil partners does not apply to them, whatever their wills say. And anyone whose will and pension nominations were written years apart, because the two documents now need to work together rather than in parallel.

What a review actually involves

Start with the documents. Your will sets out who inherits your estate. Your pension beneficiary nomination, held by your pension provider, says who receives your pension. Before April 2027 it is worth checking that both are up to date, that they name the people you actually intend, and that together they do not accidentally push your estate into a tax position you never planned. Where the sums are significant, tax planning is a job for a regulated financial adviser, and we will always say so. What we can do is make sure the will side of your plan is valid, current and clear, so it works hand in hand with the advice you take.

The timeline

The change takes effect on 6 April 2027 under the Finance Act 2026, following HMRC's technical note on inheritance tax on pensions. That leaves a window to review calmly rather than in a rush. Most reviews take a single conversation to establish whether anything needs to change at all.

If your estate plan was built on the old rules, talk to Gloucester Will Writing about reviewing your will, or read about mirror wills for couples.

This article is general information, not legal, tax or financial advice. Tax rules depend on individual circumstances and may change. For advice on your situation, speak to a qualified professional.

Source: HMRC technical note: inheritance tax on pensions (GOV.UK).