Table of Contents

• Why April 2027 Changes Everything
• The Current Rules: How Pension Death Benefits Work Now
• What Changes on 6 April 2027
• Who Is Affected — and Who Is Not
• How Beneficiary Nominations Work and Why They Matter More Than Ever
• Step-by-Step: How to Review Your Pension Beneficiaries
• The Tax Maths: Before and After 2027
• The Double Tax Problem for Older Deaths
• Strategic Considerations Before April 2027
• What Executors and Personal Representatives Need to Know
• Conclusion: The Window Is Open Until April 2027
• Frequently Asked Questions
• External References

Why April 2027 Changes Everything

For three and a half decades, the pension has occupied a uniquely privileged position in the UK estate planning landscape. Unlike property, ISAs, investment accounts, and virtually every other form of savings, most defined contribution pension pots sat entirely outside the inheritance tax calculation. Money accumulated inside a pension — even very large sums — could pass to nominated beneficiaries without triggering the 40 percent charge that applies to other estate assets above the nil-rate band.

That structural advantage ends on 6 April 2027. At the Autumn Budget 2024, Chancellor Rachel Reeves announced that from that date, most unused pension funds and death benefits will be included in the value of a person’s estate for inheritance tax purposes. The Finance (No.2) Bill had its first reading in Parliament in December 2025. The policy is confirmed and proceeding.

The government estimates that of around 213,000 estates with inheritable pension wealth in 2027–2028, 10,500 will have an inheritance tax liability where previously they would not. A further 38,500 estates will pay more IHT than would previously have been the case. The average additional IHT liability for affected estates is expected to be approximately £34,000 when pension assets are included. For many families who deliberately structured their retirement income around leaving the pension intact for inheritance purposes, this is the most consequential change to their financial plan in years.

The core change in one sentence: From 6 April 2027, most unused pension pots will be counted as part of your estate for inheritance tax purposes. If your total estate — including property, savings, investments, and now pensions — exceeds the available nil-rate band (£325,000, or up to £500,000 with the Residence Nil Rate Band), the excess will be taxed at 40%. This is a reversal of decades of pension estate planning strategy.

The Current Rules: How Pension Death Benefits Work Now

Understanding the 2027 change requires understanding why the current treatment of pension death benefits is so tax-efficient, and why the government has decided to change it.

Currently, most defined contribution pensions — SIPPs, workplace pensions, personal pensions — are held within a discretionary trust structure. The pension scheme trustees have discretion over who receives the death benefits, even where the pension holder has completed a nomination form. Because the pension does not technically form part of the estate — it belongs to the trust, not to the individual — it falls outside the inheritance tax calculation entirely. The money passes to the nominated beneficiaries outside of probate and outside of the inheritance tax estate.

Rule	Before 6 April 2027	From 6 April 2027
Pension included in IHT estate?	No — held in discretionary trust, outside estate	Yes — included in estate for IHT valuation
IHT rate on pension pot	0% (outside IHT entirely)	40% on amount above IHT nil-rate band
Death before age 75 — tax to beneficiary	No income tax (if within Lump Sum Death Benefit Allowance)	No income tax; but IHT may apply to estate
Death at/after age 75 — tax to beneficiary	Income tax at marginal rate on withdrawals	Income tax at marginal rate + IHT may apply to estate
Death at/after 75 — worst case effective rate	Up to ~45% income tax on withdrawals	Up to ~67% (40% IHT + income tax on withdrawals)
Death benefits to spouse/civil partner	Exempt from IHT	Remains exempt from IHT
Death in service benefits	Subject to IHT if no trustee discretion	Confirmed OUT of scope — exempt from change
Who pays the IHT?	N/A	Personal representative (executor) of the estate

What Changes on 6 April 2027

From 6 April 2027, most unused pension funds and pension death benefits will be brought within the value of a person’s estate for IHT purposes. The key mechanics, as confirmed through the government’s consultation and the Autumn Budget 2025:

• Most unused defined contribution pension pots — whether in accumulation or in drawdown (Flexi-Access Drawdown) — will be counted as part of the estate on death.
• Personal representatives (executors or administrators of the estate) will be responsible for reporting and paying any IHT due on the pension, not the pension scheme administrator.
• Pension scheme administrators will have new duties, including the ability to withhold up to 50 percent of taxable pension death benefits for up to 15 months from the date of death, to allow time for the IHT position to be finalised.
• Beneficiaries who are not the surviving spouse, civil partner, or a charity cannot receive more than 50 percent of the taxable pension benefits until the IHT has been paid — unless the personal representative has determined no IHT is due.
• Death in service benefits (payments made by an employer if you die while employed) are confirmed OUT of scope and will remain exempt from IHT under the new rules.
• Dependant’s scheme pensions from defined benefit schemes and collective money purchase arrangements are also excluded.
• Pension benefits passing to a surviving spouse or civil partner remain exempt from IHT, as they do for other estate assets.

Who Is Affected — and Who Is Not

The government’s figures make clear that the majority of UK pension holders will not be directly affected. Most estates will continue to have no IHT liability after April 2027. However, the change affects a significant and identifiable population of pension savers:

Most Affected

• Individuals with significant SIPP or defined contribution pension balances who expected to leave their pension to children, grandchildren, or other non-exempt beneficiaries.
• Pension holders who have deliberately preserved their pot rather than drawing it down, specifically because of the previous IHT efficiency.
• Estates where the addition of the pension pot to other assets (property, ISAs, investments) pushes the total above the available nil-rate band.
• Beneficiaries who are higher or additional rate taxpayers — particularly where the pension holder died over age 75 — who face both income tax on withdrawals and IHT on the estate.

Not Affected (or Less Affected)

• Estates where the total value — including pensions — remains below the nil-rate band of £325,000 (or up to £500,000 with the Residence Nil Rate Band for direct descendants, or up to £1,000,000 for married couples with main residence passing to children).
• Pension benefits passing to a surviving spouse or civil partner (exempt from IHT as before).
• Death in service benefit recipients (confirmed out of scope).
• Beneficiaries receiving dependant’s scheme pensions from defined benefit arrangements.

The Residence Nil Rate Band (RNRB) complication: The RNRB — which provides up to £175,000 additional IHT relief for estates leaving a main residence to direct descendants — tapers away for estates above £2 million. Including pension wealth in the estate value may bring some estates above this £2 million threshold, thereby reducing the RNRB available and indirectly increasing IHT liability beyond just the pension component itself. This interaction requires careful calculation.

How Beneficiary Nominations Work and Why They Matter More Than Ever

A pension beneficiary nomination — often called an expression of wishes form — is the document that tells your pension provider or trustees who you would like to receive your pension on death. It is legally separate from your will. Because most defined contribution pensions are held in discretionary trust structures, the scheme trustees are not legally bound by the nomination form, but they use it as the primary guide for their decision.

The 2027 changes do not alter the structure of beneficiary nominations themselves, but they change their tax consequences significantly. Post-2027, how you direct your pension death benefits — and to whom — will have direct IHT consequences. Specifically:

• Directing pension death benefits to a surviving spouse or civil partner remains fully IHT-exempt. Where a couple has other assets to live on, leaving the pension to a surviving spouse may be preferable to leaving it to children in IHT terms.
• Directing pension death benefits to charities remains IHT-exempt and may also, where sufficient charitable giving is present, reduce the IHT rate on the rest of the estate to 36 percent (down from 40 percent) under the charitable giving rate.
• Directing pension death benefits to children, grandchildren, or other non-exempt beneficiaries is no longer IHT-free for larger estates. The allocation between beneficiaries affects the total IHT bill.
• Where a pension is in drawdown (not yet designated to any specific beneficiary), the beneficiary nomination form controls who receives the remaining funds. Outdated nomination forms — naming ex-spouses, deceased relatives, or people whose circumstances have fundamentally changed — are a significant risk.

Step-by-Step: How to Review Your Pension Beneficiaries

Step 1: Locate All Your Pension Arrangements

Most people have multiple pension arrangements from different employers over the course of their career. Use the government’s free Pension Tracing Service (gov.uk/find-pension-contact-details) to locate lost or forgotten pension pots. HMRC has warned that pension pots discovered after a clearance certificate has been granted present complex new liability questions for executors — making it essential to identify all pensions before April 2027.

Step 2: Check the Beneficiary Nomination for Each Pension

Contact each pension provider and request a copy of your current expression of wishes or beneficiary nomination form. Confirm that:

• The named beneficiaries are still alive.
• You still wish to benefit those individuals in the proportions stated.
• Relationships have not changed — particularly relevant after divorce, bereavement, or estrangement.
• The nomination reflects your current estate planning wishes, not those you had when you first enrolled.

Step 3: Assess Your Total Estate Value Including Pensions

Add the value of all pension pots to your other estate assets: property, ISAs, investment accounts, savings, and other assets. Compare the total against your available nil-rate bands. Use the HMRC IHT calculator (available ahead of April 2027) or consult a solicitor or IFA to calculate your likely IHT exposure under the new rules. This calculation requires knowing both your IHT nil-rate band (including any transferred nil-rate band from a deceased spouse) and whether you qualify for the Residence Nil Rate Band.

Step 4: Update Your Will Alongside Your Pension Nominations

Your will and your pension nominations are two separate documents. Changes to one do not automatically update the other. A will drawn up before the 2027 changes that made assumptions about pensions passing outside the estate needs review. A pension nomination that names the same beneficiaries as your will may be appropriate, or there may be reasons to direct the pension differently from other estate assets in light of the new tax position.

Step 5: Consult a Qualified IFA or Specialist Solicitor

The interaction between pension IHT, income tax on inherited drawdown, the nil-rate band, the Residence Nil Rate Band, and potential drawdown strategy changes is genuinely complex. This is not a situation where general guidance fully substitutes for advice tailored to your specific estate, beneficiaries, and income needs. The government estimates the average additional IHT liability for affected estates is £34,000. The cost of a qualified adviser is likely to be significantly less than that.

The Tax Maths: Before and After 2027

An illustration from People’s Pension using the confirmed rules:

Scenario	Estate Before IHT	Pension Value	Total Estate (Post-2027)	IHT Due (Post-2027)
Emily, 73 — DC pension + other assets	£800,000 (property & savings)	£700,000	£1,500,000	£470,000 (40% on £1,175,000 over NRB)
Joe (simple case) — below NRB	£260,000 (other assets)	£50,000	£310,000	£0 (below £325,000 nil-rate band)
Couple — full allowances used	£800,000 (includes residence)	£400,000	£1,200,000	£80,000 (above £1,000,000 combined NRB)
Single person — no residence	£0 other assets	£500,000	£500,000	£70,000 (40% on £175,000 over NRB)

Note: these illustrations use simplified assumptions. Actual IHT depends on available nil-rate band, use of RNRB, age-related income tax charges, and specific estate composition. Emily’s example is drawn from People’s Pension’s published worked examples and illustrates the scale of potential liability for estates with significant pension wealth.

The Double Tax Problem for Older Deaths

The most significant financial risk introduced by the 2027 changes affects beneficiaries of people who die aged 75 or older. Under existing rules, when a pension holder dies after age 75, their beneficiaries pay income tax on withdrawals from the inherited pension at their marginal rate. This is not changing. What is changing is that those same pension funds will also now be subject to IHT as part of the estate.

The consequence, confirmed in analysis by Almond Financial and David Gray LLP, is that in the worst case, beneficiaries who are additional rate taxpayers (45 percent income tax on pension withdrawals) and whose estates are subject to IHT (40 percent) face an effective combined tax rate of up to 67 percent on inherited pension funds. The calculation: 40 percent IHT reduces the pension pot by 40 percent before it reaches the beneficiary; then income tax at 45 percent applies to withdrawals from the remaining 60 percent. The combined effect is approximately 67 percent.

Royal London’s technical guidance notes that beneficiaries can reclaim higher-rate or additional-rate income tax overpaid where the IHT payment reduces the amount received — reducing the effective rate slightly — but the dual burden remains significant and should be modelled in advance.

The 67% worst case: A beneficiary who is an additional-rate taxpayer, inheriting from a pension holder who died after age 75, with an estate subject to IHT. The IHT is charged on the full pension value at 40%. The beneficiary then pays income tax at 45% on what remains when they withdraw it. The combined effective rate on the original pension value approaches 67%. This scenario is relatively uncommon, but where it applies, the financial impact is severe and entirely avoidable with advance planning.

Strategic Considerations Before April 2027

These are considerations that an individual or family may wish to discuss with a qualified IFA or solicitor. They are not recommendations and do not constitute advice. Every estate is different.

• Reviewing drawdown strategy: for pension holders whose estate will be subject to IHT under the new rules, drawing down pension income more quickly before death — and spending or gifting those funds — may reduce the taxable estate. Pension withdrawals are subject to income tax, but at the marginal rate, which for basic-rate taxpayers is less than the 40 percent IHT rate.
• Updating beneficiary nominations to favour exempt beneficiaries: directing pension death benefits to a surviving spouse or civil partner (IHT-exempt) or to registered charities (IHT-exempt and potentially reducing the rate on the rest of the estate) may reduce the overall tax burden.
• Gifting from drawn-down pension funds: gifts made more than seven years before death are generally exempt from IHT. Pension holders with the financial capacity to draw down and gift may reduce their eventual estate. Detailed rules apply to the seven-year clock, taper relief, and annual gift allowances.
• Reviewing the pension alongside the will: the combination of beneficiary nominations and will provisions should be considered together under the new rules, ideally with the same legal and financial adviser, so that total IHT exposure is minimised coherently.
• Life insurance in trust: a whole of life policy written in trust can provide a lump sum to beneficiaries specifically to cover an IHT liability, without adding to the estate. This is a long-standing IHT planning strategy that may become more relevant for pension holders whose IHT exposure increases under the 2027 changes.

Arbuthnot Latham’s published guidance notes explicitly: “The old advice to leave pensions untouched may no longer be the best approach.” This summarises the strategic shift well. It does not mean always drawing down; it means that the default of preservation for inheritance purposes is no longer the clear winner it was before 2027.

What Executors and Personal Representatives Need to Know

One of the most significant procedural changes introduced by the 2027 rules is that personal representatives — the executors of a will or administrators of an intestate estate — become responsible for paying any IHT due on pension funds, even though they do not have direct access to those funds.
Executors will need to identify all pension arrangements held by the deceased, obtain current valuations from pension scheme administrators, include pension values in the IHT calculation, and coordinate the payment of IHT with scheme administrators using the new Pension Inheritance Tax Payments Scheme and withholding notice mechanism.
Practical implications for anyone currently acting as named executor in a friend or family member’s will: the probate process for estates with pension wealth will be more complex from April 2027. HMRC has committed to providing guidance, calculators, and process maps ahead of implementation. The deadline for paying IHT remains six months from the date of death.

• Update any lasting power of attorney or executor arrangements to ensure the named individuals understand the new pension IHT responsibilities.
• Ensure your executors know where to find your pension documents and which providers hold your various pension arrangements.
• Consider consolidating multiple small pension pots into one arrangement before April 2027 to simplify the administration for your executors.

Conclusion

The April 2027 change is the most significant shift in pension estate planning in the UK since pension freedoms in 2015. For a majority of UK pension holders, the change will make no practical difference: their total estate, including pensions, will remain below the IHT threshold. For those whose estates approach or exceed the nil-rate band, the change requires a fundamental review of assumptions that may have been in place for years.

The window between now and 6 April 2027 is the planning window. Beneficiary nominations reviewed and updated before that date still operate under the current rules on any death before the change. Estate planning strategies that are coherent under the new regime — adjusted drawdown, charitable gifting, life insurance in trust, updated wills — are most valuable when put in place with enough lead time for the seven-year gift clock to start running.

The action that every UK pension holder should take now, regardless of estate size, is to locate all their pensions, check the beneficiary nominations on each, and confirm those nominations reflect their current wishes and family circumstances. That action is free, takes an hour, and is the most fundamental piece of pension administration that most people have never done since they first enrolled. After April 2027, it will also have direct financial consequences that it did not have before.

The guidance is consistent across every solicitor, IFA, and pension provider quoted in this article: start now, get professional advice if your estate is significant, and do not wait for HMRC’s final implementation guidance as a reason to delay the preliminary review. The preliminary review is free, and the cost of not doing it is measurable in the thousands.

Frequently Asked Questions

What are the pension inheritance tax changes coming in April 2027?

From 6 April 2027, most unused defined contribution pension funds and pension death benefits will be included in the value of a person’s estate for inheritance tax (IHT) purposes. This is a major change from the current position, where most pensions sit outside the IHT estate because they are held in discretionary trust structures. If your total estate — including property, savings, investments, and now pensions — exceeds your available nil-rate band (£325,000, or up to £500,000 with the Residence Nil Rate Band), the excess will be taxed at 40%. The change was announced at the Autumn Budget 2024 and confirmed through subsequent consultation. Death in service benefits and dependants’ scheme pensions from defined benefit arrangements remain out of scope.

How do I review my pension beneficiaries?

Contact each pension provider and request a copy of your current expression of wishes or beneficiary nomination form. You should check that: named beneficiaries are still alive, you still wish to benefit those people in the proportions stated, relationships and personal circumstances have not changed since you last updated the form, and the nominations reflect your current estate planning intentions. Pension nominations are legally separate from your will; changes to one do not update the other. Providers may allow you to update the form online, by post, or by phone.

Who will be most affected by the pension IHT changes?

The government estimates 10,500 estates in 2027–2028 will face a new IHT liability that they would not previously have had, and 38,500 estates will pay more IHT than before. The most affected individuals are pension holders with large defined contribution pots (SIPPs, personal pensions, workplace pensions) who expected to pass pension wealth to children or grandchildren, and whose total estate including the pension exceeds the nil-rate band. Pension benefits passing to a surviving spouse or civil partner remain IHT-exempt.

What is an expression of wishes form for a pension?

An expression of wishes form, also called a beneficiary nomination form, is the document you complete for your pension provider nominating who you would like to receive your pension death benefits. Most DC pensions are held within discretionary trust structures, so the trustees are not legally bound by the nomination but use it as their primary guidance. The form is legally separate from your will. It is critical that it is kept up to date, especially following life events such as marriage, divorce, or bereavement.

Are death in service benefits still exempt from IHT after 2027?

Yes. Death in service benefits payable from a registered pension scheme are confirmed as out of scope of the April 2027 changes and will remain exempt from IHT. This was clarified following the initial consultation. Similarly, dependants’ scheme pensions from defined benefit arrangements and collective money purchase arrangements are also excluded.

What is the worst-case tax rate for inherited pensions after 2027?

For beneficiaries who are additional-rate income tax payers (45%), inheriting from a pension holder who died aged 75 or over, where the estate is subject to IHT (40%), the combined effective tax rate on pension funds can approach 67%. This occurs because IHT reduces the pension value by 40% before it reaches the beneficiary, and the beneficiary then pays income tax at their marginal rate on withdrawals from the remaining amount. Royal London’s technical guidance notes that some income tax overpaid can be reclaimed where IHT has reduced the amount received.

Should I draw down my pension before April 2027 to reduce IHT?

This is a complex decision that depends on your total estate value, your income needs, your tax rate, and your beneficiaries’ circumstances. Drawing down pension income reduces the value of the pension pot (reducing potential IHT exposure) but the withdrawn funds become part of your estate as cash or invested assets if not spent, potentially attracting IHT anyway. Drawing down and gifting — using the annual gift allowance, the seven-year rule, and other IHT-exempt mechanisms — may be more effective. This decision requires qualified IFA and possibly solicitor advice specific to your situation.

Will my pension beneficiaries have to wait to receive funds after 2027?

Potentially, in some cases. Pension scheme administrators may be instructed by personal representatives (executors) to withhold up to 50% of taxable pension death benefits for up to 15 months from the date of death, to allow time for the IHT position to be finalised. Non-exempt beneficiaries cannot receive more than 50% of their entitlement until IHT has been paid or confirmed as not due. Beneficiaries who are the surviving spouse, civil partner, or a charity are not subject to this restriction. In most estates with no IHT liability, beneficiaries will be unaffected.
Do I need a solicitor or IFA to deal with the 2027 pension IHT changes?
For estates where the total value — including pensions — is well below the IHT nil-rate band (£325,000 per person, or up to £1 million for married couples with a main residence passing to children), a review of your beneficiary nominations and will is prudent but may not require professional advice. For estates approaching or above the nil-rate band where pensions form a significant part of the wealth, professional advice from a qualified IFA and/or specialist solicitor is strongly recommended. The government estimates the average additional IHT liability will be approximately £34,000 for affected estates; the cost of advice is typically a fraction of this.

Disclaimer: This article is for general informational and educational purposes only. It is not financial, legal, or tax advice. Pension and IHT rules are complex and subject to change. HMRC guidance on the April 2027 changes is still being finalised. Always consult a qualified independent financial adviser (IFA), solicitor, or tax specialist for advice specific to your circumstances.