UK IHT & Pension Changes from 6 April 2027: What’s Changing, Who’s Affected, and What to Do Now

From 6 April 2027, the UK is set to make a major change to estate planning: most unused pension funds and many pension death benefits are expected to be brought into the scope of Inheritance Tax (IHT).

This matters because pensions have often sat outside IHT (particularly where scheme administrators have discretion), which has made them a common “last pot standing” in retirement planning. The policy direction for 2027 is designed to reduce that advantage.

A quick refresher on IHT thresholds

IHT is generally charged at 40% on the value of an estate above available allowances, subject to exemptions and reliefs.

The main allowances currently remain:

• Nil-Rate Band (NRB): £325,000

• Residence Nil-Rate Band (RNRB): £175,000 (where a qualifying home passes to direct descendants, subject to conditions)

• RNRB taper: reduced by £1 for every £2 of estate value above £2 million

• Transferable allowances between spouses/civil partners can increase what’s available on the second death (subject to eligibility)

A key backdrop is that the government has legislated to keep these thresholds fixed for a prolonged period, meaning more estates can fall into IHT over time as asset values rise.

The main change from April 2027: pensions move into the IHT estate

The government’s published policy intention is that most unused pension funds and death benefits will be included within the value of a person’s estate for IHT purposes from 6 April 2027.

In straightforward terms, the value left in a pension at death may increase the taxable value of the estate in the same way that cash, investments, and property do.

The policy documents describe the scope as “most unused pension funds and death benefits”, aimed at benefits that historically sat outside the estate (often through discretionary structures).

Who reports and pays: likely admin changes too

Alongside the tax change, the government has consulted on how reporting and payment will work in practice.

Personal representatives will be liable to report and pay any IHT due on unused pension funds or death benefits from 6 April 2027.

A separate technical consultation sets out an alternative model where pension scheme administrators become responsible for reporting and paying the IHT due to HMRC.

The practical takeaway is that executors/personal representatives, pension providers, and beneficiaries may need to coordinate more closely than before, particularly around valuations, timing, and cashflow.

Why this could increase IHT bills for more families

The combination of frozen IHT thresholds and bringing pensions into the estate is expected to tip more estates into IHT and/or increase the amount payable. In particular the inclusion of pensions could bring estates into the tapering for the residential nil rate band.

Simple illustrations

A person with an estate already close to allowances could see their estate value increase significantly if an unused pension is included for IHT. That can change whether IHT applies at all, and if it does, the amount due.

For couples, spouse/civil partner exemptions and transferable allowances remain central to planning, but the second death is often where IHT becomes payable and where bringing pensions into the estate can materially change the outcome.

These are simplified illustrations; trusts, reliefs, gifting history, domicile/residence status, and the detail of scheme rules and beneficiary nominations can all affect outcomes.

Planning considerations ahead of April 2027

Review pension beneficiary nominations or expressions of wish so they still reflect current intentions, and so the pension provider has clear guidance on who should benefit.

Revisit the common strategy of spending non-pension assets first and leaving pensions untouched for heirs. If pension values are within IHT from 2027, the “optimal order” of drawing wealth may change for some clients.

Consider lifetime gifting strategies where appropriate. These can reduce estate value but require careful planning, record-keeping, and an understanding of the relevant rules and time horizons.

Check death-in-service arrangements and confirm what is covered and how it is structured, given the stated exclusion.

Plan for administration and liquidity. If more IHT is due, and there are more parties involved in reporting and payment, delays and cashflow pressure can become more likely.

Get in touch

If you’re concerned that the 6 April 2027 changes could increase the Inheritance Tax due on your estate, now is the right time to take stock. An IHT review can help you understand your likely exposure, check that your wills and pension nominations still align with your wishes, and identify practical steps to protect your family and reduce avoidable tax.

To book an Inheritance Tax review with Forth Accountancy, get in touch today and we’ll arrange a convenient time to talk you through your position and next steps.