Pensions & Inheritance Tax Changes-April 2027

📢 Pensions to Fall Within Inheritance Tax from April 2027

The Government has confirmed that from 6 April 2027, unused pensions will no longer sit outside the scope of Inheritance Tax (IHT). This marks a major shift in estate planning and could have wide-reaching implications for families with significant pension savings.

🧾 The Current Position

Right now, defined contribution pensions can often be passed to beneficiaries free from IHT. It makes them a popular tool for legacy planning. Many individuals have chosen to draw from other assets first, preserving pensions as a tax-advantaged inheritance.

🔄 What Will Change in 2027

From April 2027, unused pensions will be treated as part of a person’s estate for IHT purposes.

Key changes include:

• Scope: Both defined contribution and defined benefit schemes are expected to be included.
• Responsibility: Executors, not pension scheme administrators, will be responsible for reporting and settling any IHT due on pension death benefits.
• Exemptions: Transfers to spouses or civil partners, death-in-service payments, dependants’ pensions, and charitable gifts will remain exempt.

👥 Who Could Be Affected

This reform will be most relevant for:

• Individuals with larger pension pots who haven’t fully drawn down their funds.
• Families whose estates are close to or exceed the nil-rate band (£325,000 per person, or up to £500,000 with the residence nil-rate band).
• Those relying on pensions as a tax-efficient estate planning tool.

🧠 Planning Considerations

This change raises important questions for retirement and inheritance strategies.

Consider:

• Reviewing your expression of wishes to ensure beneficiaries are up to date.
• Including pension values in your IHT exposure calculations.
• Evaluating whether to draw on pensions earlier in retirement.
• Exploring trusts, allowances, and other structures to mitigate future IHT liabilities.

✅ Next Steps

With pensions forming part of the IHT calculation from 2027, it’s essential to revisit your financial plan. While pensions will remain vital for retirement income, their role as a tax-efficient inheritance vehicle will diminish.

💬 If you’d like to explore how these changes may affect your own circumstances, the team at YorWealth is here to help.

Pensions and investments always carry an element of risk, returns cannot be guaranteed. Your eventual income may depend on the size of fund when accessed, interest rates and legislation.