Will your pension pot be caught by inheritance tax from April 2027 — and what should you do now?

For decades, leaving unspent pension savings to your family has been one of the most tax-efficient ways to pass on wealth. Your pension pot sits outside your estate — completely separate from your house, savings, and investments — and can pass to your children or grandchildren without any inheritance tax. That long-standing advantage disappears on 6 April 2027. If you have a pension pot, you need to understand what this means for you.

What exactly is changing from April 2027?

The change was announced in the October 2024 Budget. From 6 April 2027, most unused pension funds — including defined contribution workplace pensions and personal pensions — plus any death benefits paid from a pension, will be counted as part of your estate when you die.

Currently, inheritance tax (IHT) is charged at 40% on anything above the nil rate band of £325,000. There is also a residence nil rate band of up to £175,000 if you leave your home to a direct descendant such as a child or grandchild, giving a combined threshold of £500,000 for many people. Until now, your pension was not included in that calculation. From 2027, it will be.

The government estimates that around 10,500 estates a year will be newly affected — roughly 1.5% of all UK deaths. But the ripple effects reach much further, because anyone with a meaningful pension pot should now review their estate planning, even if they do not currently expect to pay tax.

Why could this affect you even if you don’t think of yourself as wealthy?

Many people significantly underestimate the value of their pension. If you have worked for thirty or forty years and made regular contributions — and your pot has grown through investment returns — you may be sitting on considerably more than you realise. Add your home, your savings, and your pension together, and the £325,000 threshold can be reached more quickly than expected.

Here is a straightforward example: a home worth £300,000 and a pension pot of £180,000, plus £40,000 in savings, would give a combined estate of £520,000. Even after the residence nil rate band is applied, that estate could face an inheritance tax bill on a portion of the pension — a bill that simply would not have existed under today’s rules.

Are transfers to a spouse or civil partner still protected?

Yes — and this is a very important protection. The spousal exemption means that assets passed between married couples or civil partners remain completely exempt from inheritance tax, regardless of the amount. This includes pension death benefits. So if your pension passes to your spouse or civil partner when you die, no IHT is due — even after April 2027.

This exemption is one reason why many financial advisers are now urging people to review who they have nominated to receive their pension. If you nominated your children directly years ago, it may now be worth considering whether nominating your spouse first — who benefits from the exemption — would result in a lower overall tax bill for your family.

What is an expression of wish — and why does yours need reviewing now?

An expression of wish (sometimes called a nomination form or beneficiary nomination) is the document you complete to tell your pension provider who you would like to receive your pension savings when you die. The pension trustees take your wishes into account — though they are not legally bound by them, which is actually beneficial because it keeps pension funds outside probate.

Many people set up a pension nomination years or even decades ago and have never revisited it. In some cases, the nominated person may have died. In others, the form may name children rather than a spouse, which — after 2027 — could mean missing out on the spousal exemption entirely.

Updating your expression of wish costs nothing and usually takes around fifteen minutes. Log in to your pension account online, or contact your pension provider directly. If you have multiple pensions from different employers, you will need to update the nomination on each one separately.

Could your beneficiaries face a double tax hit?

In some situations, yes — and this is one of the more serious implications of the change. If you die after the age of 75, your pension is already subject to income tax when your beneficiaries draw it down. From April 2027, that same pension could also be counted in your estate for inheritance tax.

This means that an adult child who is a higher-rate taxpayer could face a combined effective rate of up to 67% — inheritance tax at 40% on the estate, and income tax at 45% on the pension income they receive. For most families, the interaction will not reach that extreme, but it underlines why taking regulated financial advice before making any decisions is so worthwhile.

What practical steps should you take before April 2027?

• Update your expression of wish. Check who is nominated to receive your pension and make sure it still reflects your circumstances. Contact each pension provider — most allow you to update this online or by post.
• Find out what your pension is actually worth. Request an up-to-date statement from every pension provider and add the total to your estate valuation. Many people are surprised by the combined figure.
• Consider speaking to a regulated financial adviser. An adviser can model different scenarios — for example, whether drawing down more of your pension during your lifetime (which removes it from your estate) makes sense for you. Find FCA-regulated advisers at register.fca.org.uk.
• Review your will. If your estate plan assumed your pension would pass outside your estate, your will may need updating to reflect the new rules. A solicitor can help you ensure everything still fits together.
• Don’t panic, but don’t delay. Most estates will still have no inheritance tax liability at all. But understanding where you stand gives you the chance to plan. There is still time — but not forever.