Inheritance tax and pensions are two areas many people think about separately, but upcoming changes mean they may soon become much more intricately linked. From 6 April 2027, most unused pension funds are expected to be included within a person’s estate for inheritance tax purposes. For families who have worked hard to build retirement savings, own property, hold investments or want to pass wealth on to loved ones, this could have a meaningful impact on future estate planning.
For many years, defined contribution pensions have often sat outside the estate for inheritance tax calculations, making them an important part of retirement planning and, in some cases, intergenerational wealth transfer. The new rules are intended to refocus pensions on their original purpose: providing income in retirement. However, the practical effect is that more estates may fall within the inheritance tax net, and some families may face higher tax bills than expected.
This does not mean everyone needs to make immediate changes, or that pensions are no longer tax efficient. In most cases, pensions remain a valuable way to save for later life. But the change does mean it is important to understand how your pension pot, home, savings, investments, life cover, beneficiary nominations, Will and wider estate fit together. A financial plan that was originally set up to work well for retirement income and inheritance tax planning may need to be reviewed before April 2027.
The impact may be particularly relevant for people with larger pension funds, unused drawdown arrangements, valuable homes, investment portfolios, or estates already close to the inheritance tax thresholds. It may also matter for personal representatives and executors, who are likely to have additional responsibilities when identifying pension benefits, gathering valuations and reporting any inheritance tax due. Good record keeping, clear beneficiary nominations and joined-up advice can make a significant difference for the people left to manage an estate.
With inheritance tax charged at 40% above available allowances, even small misunderstandings can become costly. The key is not to act in haste, but to take informed, measured steps. That may include reviewing pension arrangements, checking death benefit nominations, updating a Will, considering the role of trusts, assessing gifting options, reviewing protection needs, or speaking to both a financial planner and a solicitor.
This article from Sam Goult as featured in The Scotsman, explains what is changing, why the inheritance tax treatment of pensions matters, who may be affected and what practical steps you can take now. If you are unsure whether the new rules could affect your family, pension savings or estate planning strategy, read on for a clearer overview or get in touch to discuss your circumstances with a member of our team.
