Pensions and inheritance tax: how the rules are changing
23 September 2026
From 6th April 2027, most unused pension funds and pension death benefits will be included in a person's estate and subject to Inheritance Tax. That changes more than the tax bill; it could change how families save, spend and pass on wealth.
Need to know: Pensions remain a powerful way to fund retirement, but this upcoming change means the old habit of spending non-pension assets first should no longer be accepted without review.
What is changing?
For deaths on or after 6th April 2027, most unused pension wealth will count when calculating the value of an estate for Inheritance Tax. Transfers to a spouse or civil partner will generally remain exempt (subject to the rules and circumstances).
Why these changes matter
Some non-exempt beneficiaries may face Inheritance Tax on the pension and Income Tax when they later withdraw taxable benefits.
Adding a pension could push an estate above £2 million, reducing the Residence Nil-Rate Band (RNRB) where it otherwise applies.
Personal representatives will need to identify pension schemes, obtain valuations and deal with reporting and payment deadlines.
The most suitable order for drawing from pensions, ISAs and taxable investments may change.
The best place to hold higher-growth or income-producing assets may need to be reconsidered.
Risk of Loss
Risk of Loss
The value of your investments may rise or fall and you may not receive back the same amount you put in when you choose to cash out your savings. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.
What are the five questions to ask now?
Before making any decisions, it is worth asking yourself:
Is my Expression of Wish form up to date?
Would my intended beneficiaries face both Inheritance Tax and Income Tax?
Should I change the order in which I draw from my assets?
Could lifetime gifts support my family without undermining my own security?
Would consolidating pensions make the plan and eventual administration simpler?
Do not view a pension in isolation
Taking more from a pension could reduce one future tax exposure while increasing current Income Tax or leaving more wealth in accounts that form part of the estate. The right answer depends on cash flow, life expectancy assumptions, investment risk, family goals and the whole balance sheet.
The bottom line
This is a reason to review - not to abandon - pensions. Tax-relieved contributions and tax-efficient growth can still make them central to retirement planning. Speak to an Adviser to find out more fill out the form below.
Important information: This content is for general information only and is not personal financial or tax advice. Tax treatment depends on individual circumstances and rules can change. Seek advice before taking action.
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