Guide
Pensions and inheritance tax: what changes in April 2027
For years, pensions have been one of the most tax-efficient ways to pass on wealth. From 6 April 2027 that changes for many families. Here is what is changing and what you can do.
What is changing
For deaths on or after 6 April 2027, most unused pension funds and death benefits are expected to be included in the value of your estate for inheritance tax. Pensions left to a spouse or civil partner remain exempt.
The nil-rate band (325,000 pounds) and residence nil-rate band (175,000 pounds) are frozen until April 2031, so more families will pay inheritance tax as values rise.
Who is most affected
- People with large defined contribution pensions they did not plan to spend
- Estates close to or above 2 million pounds, where the residence nil-rate band starts to taper away
- Anyone who dies aged 75 or over, because beneficiaries also pay income tax on what they draw
A simple example
A widow with a 600,000 pound home, 200,000 pounds of savings and a 400,000 pound pension, leaving everything to her children. Today her pension is outside the estate. From April 2027 the extra 400,000 pounds could add around 160,000 pounds of inheritance tax, and if she dies after 75 her children may pay income tax on the remaining pension as they draw it.
Steps to consider now
- Check your pension nominations and expression of wish forms
- Consider drawing pension income to make regular gifts out of surplus income, which can be immediately exempt
- Look at whole of life cover written in trust to pay the bill
- Review the order you use ISAs, savings and pensions in retirement
- Update your will and lasting powers of attorney
Important information
The value of pensions and investments can fall as well as rise and you may get back less than you put in. Pension and tax rules can change, and their effect depends on your circumstances.
The Financial Conduct Authority does not regulate tax, trust or estate planning advice. Tax treatment depends on individual circumstances and may change in the future.
Talk to an adviser
Book your free first meeting
No obligation. We’ll listen, explain your options and only recommend what’s right for you.
Related
You may also be interested in
Pensions & inheritance tax 2027 checker
From April 2027 most pensions count for inheritance tax. See what it could cost your family.
Find out more
Inheritance tax planning
Plan ahead to protect your estate and pass on more of what you have built.
Find out more
Q&A
Questions & answers
When do the pension inheritance tax changes start?
They are expected to apply to deaths on or after 6 April 2027.
Should I take my pension out now?
Not without advice. Taking large sums can trigger income tax and may simply move the money into your estate. The right answer depends on your income needs, health and family plans.
Your first meeting is free
Talk to an independent financial adviser in St Albans. Call 01727 223251 or send us a message.