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For decades, your pension has been one of the few things you could pass on to your children or grandchildren completely free of inheritance tax. That’s about to change.

From 6 April 2027, most unused pension funds will be brought into your estate for inheritance tax (IHT) purposes for the first time. If you’ve been planning to leave your pension pot to loved ones as a tax-efficient nest egg, it’s worth understanding exactly what’s changing — and what you can still do about it.

What’s actually changing?

Under the current rules, if you die with money left in a defined contribution pension, that pot can usually be passed to your chosen beneficiaries without inheritance tax being charged on it. It’s one of the reasons many people have been advised to spend other savings first and preserve their pension for as long as possible.

From April 2027, that changes. Unused pension funds and most death benefits — what HMRC calls “notional pension property” — will be added to the value of your estate when working out how much inheritance tax is due. In short, pensions will be treated much more like the rest of your savings and assets.

Why is this happening?

It isn’t happening in isolation. Inheritance tax has quietly become a much bigger issue for ordinary families in recent years. The nil-rate band — the amount you can leave before IHT applies — has been frozen at £325,000 since 2009 and is set to stay frozen until 2031. The residence nil-rate band, an additional £175,000 allowance when a home is left to children or grandchildren, is frozen too.

Meanwhile, house prices and other assets have kept rising. The result: HMRC collected a record £8.5 billion in inheritance tax in 2025/26, and industry experts now expect the number of estates caught by IHT to double by 2030. Bringing pensions into the mix is expected to pull thousands more families into paying inheritance tax for the first time, some of whom would never have considered themselves “wealthy enough” to worry about it.

Who does this affect?

Broadly, anyone who:

• Has a defined contribution (money purchase) pension with funds likely to remain unused at death
• Was planning to use their pension as a way of passing wealth to children or grandchildren tax-efficiently
• Has a reasonably valuable estate once property, savings and pensions are added together

It’s worth noting that some benefits remain outside the new rules, including certain dependants’ scheme pensions, death-in-service benefits, and some annuity guarantee arrangements. The rules are detailed, and how they apply to your specific pension will depend on your scheme and circumstances.

Does the spousal exemption still apply?

Yes — this is important. Transfers between spouses and civil partners remain exempt from inheritance tax, just as they do for the rest of your estate. So if you leave your pension to your husband, wife or civil partner, it should still pass without an IHT charge. The bigger impact is likely to be felt when pensions are left directly to children, grandchildren or other beneficiaries.

There’s also a practical shift in who becomes responsible for reporting and paying any tax due. From 2027, this responsibility largely sits with your personal representatives (your executors), rather than the pension scheme itself — another reason it pays to have your affairs clearly documented in advance.

What can you do before April 2027?

You have time to plan, and that’s the good news. A few things worth thinking about now:

1. Review your expression of wishes. Make sure your pension provider has an up-to-date record of who you want your pension to go to.
2. Revisit your overall estate plan. With pensions no longer automatically outside your estate, your will, gifting strategy and any trusts may need a fresh look.
3. Think about the order you draw down your savings. The old advice to “spend everything else first, leave the pension until last” may no longer be the most tax-efficient approach for everyone.
4. Don’t rush into drastic decisions. There’s still time before the rules take effect, and any changes to how or when you access your pension should be weighed carefully against your income needs in retirement.

Get advice tailored to your circumstances

Every estate and every pension is different, and the right approach for one family won’t necessarily suit another. If you’d like to understand how the 2027 changes might affect your own plans, get in touch with our team for a personalised review of your estate and pension arrangements.

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This article is for general information only and does not constitute financial, tax or legal advice. Rules on inheritance tax and pensions are complex and subject to change — please speak to a qualified adviser about your individual circumstances before making decisions.

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