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How pensions are treated for Inheritance Tax is expected to change and could have a significant impact on how families plan for the future.
From April 2027, most unused pension funds and death benefits are expected to be brought into your estate for Inheritance Tax purposes.
For some families, this could mean a larger tax bill, not to mention greater complexity during probate.
Before making any changes, take stock of what you own.
Think about your pensions, savings, investments, property and business interests, and get an up-to-date idea of their value. This will help you understand whether Inheritance Tax could become an issue and what your position might look like from April 2027.
The impact certainly won’t be the same for everyone. One example discussed by Wren Sterling’s Daniel Payne, a Chartered Financial Planner and host of our webinar, showed how including pension assets in an estate could significantly increase the IHT position for some individuals.
It’s particularly important to understand your position if the value of your estate could be around or above £2 million, as the Residence Nil-Rate Band can begin to taper away at this level.
The changes don’t mean pensions are no longer useful. Pensions remain an important part of Financial Planning because of the tax relief available when you pay into them. However, the balance between pensions, ISAs and other investments will also become increasingly important.
Rather than simply asking ‘should I take money out of my pension’, it will be more important than ever to think about how your different assets can be working together for maximum efficiencies.
If you have several pension pots, it may be worth reviewing whether they can sensibly be consolidated. Multiple pensions could create additional administration when they form part of an estate. However, consolidation isn’t automatically the right answer: valuable guarantees, benefits, charges and investment options should all be considered first.
Inheritance Tax planning certainly shouldn’t come at the expense of your own financial security.
Research from Pensions UK’s 2026 Retirement Living Standards suggests that a single person aiming for a “comfortable” retirement could need a pension pot of around £560,000, based on annual spending of £45,400 after tax. This lifestyle includes holidays, eating out, leisure activities, a car and helping family, but does not account for potential care costs. Having a clear idea of how your estate will support you in later life is an essential part of any IHT planning conversation. The aim is to find the right balance between enjoying your life today and passing wealth on in the future.
It’s unlikely that you will need to jump straight into complicated arrangements. Some of the options discussed in our latest webinar included:
Each option has advantages and trade-offs, so the important thing is to consider them as part of your overall financial plan.
For some families, more Specialist Financial Planning may be appropriate. This could include trusts, business relief investments – which often involving financial, legal and tax advisers working together.
What’s clear is there’s no single solution that works for everyone. The best place to start is with a clear picture of your estate, your priorities and what you need your money to do for you.
The earlier you understand your position, the more time you have to consider your options carefully – rather than simply making decisions simply because the rules are changing.
From April 2027, unused pension funds and death benefits are expected to be brought into your estate. IHT on Business Property Relief (BPR) and Agricultural Property Relief (APR) are already now measured with a combined cap on the value of those assets. Individuals who have invested a lifetime of work and passion into growing their business should talk to a Financial Adviser about the proposed pension and inheritance tax changes as soon as possible.
An Estate Plan is made up of several parts. While a Solicitor can advise on Trusts and Powers of Attorney, they will not be able to discuss your Inheritance Tax liability. Independent Financial Adviser can help you with inheritance tax and consider personalised strategies to reduce your IHT liability.
If you are married or have a civil partner, you can leave your entire estate to them free of inheritance tax. Any unused Nil Rate Band can be transferred to the surviving spouse, and used when you pass on your estate to your family and friends. This is known as the ‘Transferable Nil Rate Band’. This is not automatic and must be claimed by the representative of the second spouse on their death.
If you are concerned about your own parents passing away and how to handle probate, then we would recommend learning more about their Financial Plans now – perhaps even joining their Financial Planning meetings. This can lift some of the uncertainty around ‘what happens next’, so that when the worst happens, you can be prepared.
This article is for general information only and does not constitute financial, legal or tax advice, which should be sought before taking any action or inaction. Tax treatment depends on individual circumstances and may change. Investments can fall as well as rise, and you may get back less than you invest.
All references to taxation are to UK taxation and are based on our current understanding of UK laws and HM Revenue & Customs’ practice as at April 2026. Tax and legislation are subject to change in the future. The Financial Conduct Authority does not regulate Tax Planning, Inheritance Tax Planning, Estate Planning, Will writing or Trusts.
