From 2027, pensions will come into the inheritance tax (IHT) net. For families with large pension pots, that raises a new question: how much is “safe” to leave behind before HMRC takes a share? The answer isn’t a single number, it depends on your overall estate, your age, and your planning.
For years, pensions were seen as the “perfect inheritance vehicle.” They sat outside of IHT, making them more tax-efficient to pass on than property, ISAs, or cash. But from April 2027, the rules are changing.
Unused pensions may now be subject to 40% IHT on death. That doesn’t mean every family will face a huge tax bill, but it does mean the amount you leave behind matters.
Factors that decide the tax impact
Size of your pension pot
If your pension is under £500,000, IHT is unlikely to be the main issue. Above £1m, it could become a significant liability, especially if you have other assets pushing your estate over the £325,000 nil-rate band (or £500,000 with the residence allowance).
Your other assets
Pensions don’t exist in isolation. If you already have property, investments, and cash worth several million, leaving a large pension untouched could push your heirs into a sizeable tax bill.
How much you draw in your lifetime
Using your pension steadily for income during life can reduce what’s left to be taxed. That doesn’t mean draining it recklessly, it means planning withdrawals with tax efficiency in mind.
Beneficiaries’ circumstances
Sometimes it may be better to leave pension funds to younger generations, charities, or even trusts, depending on your family structure and goals.
Is there a “safe” number?
There isn’t a magic figure. For many families, the issue only becomes material once pension pots approach or exceed £1m. Below that level, other parts of the estate (property, business assets) usually create the bigger IHT exposure.
What to do now
~Review your estate in the round, pensions are just one piece.
~Check your beneficiary nominations, small tweaks can avoid big problems.
~Think strategically, using pensions for living costs and preserving ISAs or other tax-efficient wrappers may make more sense in the new regime.
~Get impartial advice, especially if you’re relying on pensions as an inheritance strategy.
Bringing it together
The 2027 changes mean pensions are no longer the untouchable inheritance vehicle they once were. But with thoughtful planning, you can still use them wisely.
The question isn’t just “how much pension should I leave?”, it’s “how do I balance my income needs today with my family’s needs tomorrow, while keeping tax to a minimum?”
Nic Round is a Chartered Financial Planner and Chartered Wealth Manager, authorised and regulated by the Financial Conduct Authority.