Inheritance Tax Changes 2027: Will Your Pension Be Subject to Inheritance Tax?

What is changing to pensions and inheritance tax in April 2027?

At present, most unused pension funds generally sit outside a person's estate for inheritance tax purposes.

As a result, pensions have often formed an important part of people's wider estate planning.

That will change for deaths occurring on or after 6 April 2027. Most unused pension funds and pension death benefits will be brought into the value of an estate for inheritance tax purposes. The reforms were announced at the Autumn Budget 2024 and subsequently legislated for in Finance Act 2026.

HMRC describes the relevant pension assets under the new regime as “notional pension property”. There are exceptions to the new rules, so the treatment of an individual pension or death benefit will depend on the circumstances.

This means that some families who previously expected little or no inheritance tax liability could find themselves facing a different position.

If you already have a Will, this is therefore a sensible time to ask a simple question:

Does my existing Will and estate plan still achieve what I want it to achieve after the inheritance tax changes in April 2027?

At Arona St James Solicitors, we can review your Will and estate arrangements with you and explain the practical implications for your family.

The practical message for families is straightforward: your pension could become much more important when working out the inheritance tax position of your estate.

Will my pension be subject to inheritance tax from 2027?

Potentially, yes.

From 6 April 2027, most unused pension funds and pension death benefits will be included when calculating the value of an estate for inheritance tax.

However, this does not mean that every pension will automatically suffer inheritance tax.

Whether inheritance tax is actually payable will depend on matters including:

• the overall value of your estate;
• the value and type of your pension benefits;
• who receives your assets and pension benefits;
• the exemptions and allowances available to the estate; and
• your wider estate-planning arrangements.

There are also exclusions within the legislation, including in relation to certain pension benefits.

That is why it is important not simply to look at the value of your pension in isolation.

Could the 2027 pension changes affect my family?

Consider a homeowner with:

• a property worth £700,000;
• savings and investments of £200,000; and
• pension savings of £500,000.

That represents overall wealth of £1.4 million.

Under the current system, a pension that falls outside the estate would not ordinarily be included in the estate value simply for IHT purposes.

For a death on or after 6 April 2027, pension assets within the new rules may need to be taken into account.

So a family who thought they understood their inheritance tax exposure may find that the calculation looks very different once pension wealth is considered.

This example is illustrative only. The actual inheritance tax liability would depend on the individual's circumstances, available exemptions and reliefs, the nature of the pension benefits and how the estate passes.

Do I need to change my Will because of the 2027 inheritance tax rules?

Not necessarily.

But you should consider reviewing it.

A Will written several years ago may have been prepared against a very different tax and financial background.

The important question is not simply whether your Will remains legally valid. It is whether your Will, pension arrangements and wider estate planning still produce the result that you actually want.

For example, you may want to consider:

Who do you want to inherit?

Does your Will still reflect your current family circumstances and wishes?

How large could your estate now be?

Property values, savings, investments and pension funds may have changed substantially since you made your Will.

Have you reviewed your pension arrangements?

Your pension arrangements should be considered alongside your Will and wider estate planning rather than treated entirely separately.

Are there trusts in your Will?

If your existing Will contains a trust, it may be sensible to review whether that structure remains suitable for your circumstances.

Are you leaving anything to charity?

Charitable gifts can be relevant to inheritance tax planning, and the legislation contains specific treatment for certain exempt beneficiaries, including charities.

Has your family changed?

Marriage, divorce, bereavement, children, grandchildren and changes to family relationships can all provide good reasons to revisit an older Will.

I made my Will years ago. Is it still suitable?

This is one of the most important questions to consider before April 2027.

A Will does not automatically become unsuitable simply because the tax rules change.

However, the assumptions on which your estate planning was originally based may have changed.

For example, your:

• home may be worth considerably more;
• pension fund may have grown;
• savings or investments may have changed;
• beneficiaries may have different needs;
• family circumstances may have changed; or
• overall estate may now have a different inheritance tax exposure.

A Will review gives you an opportunity to consider all of these issues together.

What should I review before 6 April 2027?

If you are concerned about the changes, a useful starting point is to build a current picture of your estate.

Consider:

Your property

What is your home approximately worth? Do you own any other property?

Your pensions

What pensions do you have and what are their approximate current values?

Your savings and investments

Include bank accounts, ISAs, shares and other investments.

Your existing Will

When was it prepared and do its provisions still reflect your wishes?

Your beneficiaries

Who do you want your estate to pass to?

Your family circumstances

Have there been marriages, divorces, births, deaths or other important changes since your Will was prepared?

Your executors

Are the people you appointed still appropriate and willing to deal with your estate?

Taking stock now can help identify whether your Will requires amendment or whether it continues to meet your objectives.

Will probate become more complicated after April 2027?

For some estates, yes, potentially.

The new pension IHT regime introduces additional interaction between personal representatives, pension scheme administrators, beneficiaries and HMRC.

HMRC's technical material specifically addresses how relevant pension property is identified and valued, who reports and pays inheritance tax, and the information-sharing arrangements between those administering the estate and pension schemes.

Regulations have also been made dealing with information that pension scheme administrators and personal representatives must provide to one another, beneficiaries and HMRC after the death of a scheme member.

For executors, this makes careful administration increasingly important.

Probate is not simply about obtaining a Grant of Probate. Executors may need to establish the full extent of the estate, obtain pension information, consider the inheritance tax position, deal with HMRC requirements and ensure that the estate is administered correctly.

I am an executor. What do the pension inheritance tax changes mean for me?

If you are appointed as an executor or act as a personal representative after the new rules take effect, pension information may form an important part of establishing the deceased's inheritance tax position.

HMRC's rules include information-sharing requirements involving pension scheme administrators and personal representatives so that a complete inheritance tax account can be prepared where required.

For families dealing with a bereavement, this may introduce another area that needs to be addressed alongside the deceased's property, bank accounts, investments, debts and Will.

Early legal advice can be particularly useful where the estate contains significant pension wealth or there is uncertainty about inheritance tax.

Can I avoid inheritance tax by changing my Will?

A Will should not be viewed as a way of simply “avoiding inheritance tax”.

Its primary purpose is to record who should receive your estate and who should deal with it after your death.

However, the way an estate is structured and passes to beneficiaries can affect its inheritance tax treatment.

Good estate planning therefore starts with understanding:

• what you own;
• what it is worth;
• who you want to benefit;
• what pension arrangements you have; and
• whether your existing Will still reflects those intentions.

Legal advice should be tailored to your individual circumstances rather than based on generic inheritance tax strategies found online.

Do the 2027 inheritance tax changes apply if someone dies before 6 April 2027?

No, the new pension measure applies to deaths occurring on or after 6 April 2027.

HMRC specifically confirms that if a pension scheme member dies before 6 April 2027, the current rules apply even if the pension benefits are subsequently paid to beneficiaries after that date.

This distinction is particularly useful for executors and families administering estates around the commencement date.

Review your Will before the 2027 inheritance tax changes

The inheritance tax changes coming into force on 6 April 2027 make this a particularly important time for people with pension savings to look again at their estate planning.

You do not necessarily need a new Will simply because the law is changing.

But you do need to know whether the Will you already have still does what you want it to do.

At Arona St James Solicitors, our Wills and Probate team can help with:

• reviewing an existing Will;
• preparing a new Will;
• considering your estate and family circumstances;
• probate applications;
• obtaining a Grant of Probate;
• obtaining Letters of Administration; and
• estate administration following a death.

If you are concerned about how the April 2027 pension and inheritance tax changes could affect you or your family, contact Arona St James Solicitors in Walthamstow, London to arrange a discussion about your circumstances.

This blog has been written by Noel Carroll, Probate Solicitor and Head of Private Client, assisted by Copilot.