How should we rethink pension planning now that from April 6, 2027, unused pension funds and death benefits will be included in estate valuations for IHT?
From 2027, most unused pension funds and death benefits, including defined-contribution pots, annuities with death-in-survivor benefits, and discretionary lump sums, will be treated as part of your estate for inheritance tax (IHT) purposes. Previously, pensions were outside the estate and passed tax-free if left untouched. That’s no longer the case.
Spousal transfers remain exempt, but any pension left to non‑spouse beneficiaries will count toward the nil-rate band (£325,000, plus residence band if applicable)
The government estimates around 10,500 estates that previously paid no IHT will now owe it, and ~38,500 estates will pay more, averaging roughly £34,000 extra tax
Reporting and paying the tax will now fall to the personal representative (executor)—not pension administrators—reducing administrative burden on pension schemes
Consider these practical strategies while the rules are still draft and the full picture hasn’t yet bedded in:
Review nominations
Ensure all pensions are designated to a spouse or civil partner to secure the spousal exemption.
Consolidate pension pots
Fewer schemes mean simpler valuations and faster payouts for your estate
Adjust drawdown strategy
Rather than risking a large IHT hit on death, evaluate drawing down more during retirement to enjoy the tax-free cash now.
Lifetime gifts—pensions or otherwise
Use gift allowances or pension top-ups for children/grandchildren (up to £2,880 annually, boosted to £3,600 post-relief) to reduce your estate
Keep an eye on timing
No immediate changes until 2027—but drafting wills and updating trusts now sets the groundwork before the regulations lock in.
The government’s move ends the long-held advantage of leaving pensions untouched—and that’s a big shift. But it also opens a window of opportunity to reshape your plan.