Your pension could now trigger inheritance tax
From April 2027, unused pension pots will form part of your estate for inheritance tax, affecting thousands more families.
Starting April 2027, the rules around pensions and inheritance tax are changing in a major way. Unused pension funds will be treated as part of your estate when it comes to IHT calculations. This is a significant shift from how things work now, where pension pots have traditionally passed to the next generation largely outside the inheritance tax net.
Here's what it means. If you die with money still in your pension pot, that cash will count towards your total estate value. If your estate exceeds the nil-rate band (currently £325,000), inheritance tax at 40% could be charged on the excess, including your unused pension funds.
The government estimates this change will drag around 10,000 extra estates into paying inheritance tax in the first year alone. That is a lot of families facing bills they might not have expected.
The good news? If your pension passes to a spouse, civil partner, or to charity, you are exempt from the new rules. Death-in-service benefits from your employer are also protected.
For many people, the smartest move is to use pensions in retirement rather than leave them untouched. If you have significant savings or business interests, now is the time to think about estate planning.
Based on reporting by MoneyWeek (20 July 2026). Information only, not advice.
Information only. This is general information, not financial, tax or legal advice, and not a personal recommendation. Tax rules depend on your individual circumstances and can change. The April 2027 pension change is subject to legislation. Please speak to a qualified, FCA-regulated adviser before acting.