From April 2027, pension death benefits will be brought into the scope of inheritance tax (IHT). For many families, this changes the long-held view of pensions as a completely tax-free inheritance vehicle. The good news? With the right planning, most people can still manage the impact.
For years, pensions were seen as the perfect way to pass wealth down a generation:
~No inheritance tax on death
~No income tax if beneficiaries were under 75
~Flexible access for beneficiaries
That’s changing. The government has confirmed that from 2027, unused pensions will normally be subject to IHT when passed on.
What this means in practice
If you have a significant pension pot, part of it could now be taxed at 40% on death — just like other assets. For high-net-worth families with large pensions, this could be a major shift.
But here’s the key: for most people, pensions still won’t be the main driver of inheritance tax bills. Why? Because you’d need very large pension funds for IHT to bite in a meaningful way.
Who will be most affected?
What you can do now
~Don’t panic. For many, the impact will be limited.
~Review your will and beneficiaries. Small changes can reduce the risk of unnecessary tax.
~Think bigger picture. Estate planning isn’t just about pensions. Property, business assets, ISAs, and trusts all play a role.
~Get advice. The rules are evolving, and poor planning could create unintended tax bills.
Bringing it together
The 2027 change closes a generous loophole, but it doesn’t make pensions a bad planning tool. It simply means families need to think more strategically about how pensions, property, and other assets interact.
Financial wellness isn’t about avoiding tax at all costs — it’s about structuring wealth so it works for you in life, and for those you leave behind.
Nic Round is a Chartered Financial Planner and Chartered Wealth Manager, authorised and regulated by the Financial Conduct Authority.