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Written by Sarah Cheesman
If you’ve spent years building up your pension, there’s a good chance you’ve also thought about what will happen to it when you’re gone. For a lot of people, pensions have been one of the most tax-efficient ways to pass wealth on to loved ones, making them an important part of estate planning.
However, that’s now set to change. From 6 April 2027, the Government is changing how most unused pension funds are treated for Inheritance Tax (IHT). While these changes won’t affect every family, they could mean that more estates become liable for Inheritance Tax than under the current rules.
If you’re a homeowner with a pension, it’s worth understanding what’s changing, who could be affected and why planning ahead could make all the difference.
What Are the Pension Inheritance Tax Changes?
From 6 April 2027, most unused pension funds and pension death benefits will normally be included as part of a person’s estate for Inheritance Tax purposes when they die.
Until now, pensions have often been treated differently from assets such as property and savings. In many cases, any money left in a pension hasn’t been included when calculating the value of an estate for Inheritance Tax, which has encouraged some people to preserve their pension savings, using other assets during retirement instead, knowing more of their pension could potentially be passed on to their loved ones.
The Government says the new rules are designed to return pensions to their original purpose of providing an income in retirement, while creating greater consistency in how different types of pension are treated
It’s important to note that these changes only apply where someone dies on or after 6 April 2027. If they pass away before this date, the current rules will continue to apply, even if their pension benefits are paid out later.
How Do the Rules Compare?
The biggest difference is whether unused pension savings are included when calculating the value of someone’s estate for Inheritance Tax.
| Current Rules | From 6 April 2027 |
| Most unused pension funds sit outside the estate for Inheritance Tax. | Most unused pension funds will usually form part of the estate for Inheritance Tax. |
| Many people have chosen to leave pension savings untouched and use other assets first during retirement. | Pension savings may increase the overall value of an estate and could affect the amount of Inheritance Tax due. |
| Pension values often aren’t included when calculating the estate. | Pension values will usually need to be included when calculating the estate. |
The new rules will also affect how estates are administered after someone dies. Executors and pension providers will need to share more information to help calculate any Inheritance Tax that may be due, making the process more involved than it is today.
Who Could Be Affected?
The changes won’t mean everyone pays more Inheritance Tax. Whether any tax is due still depends on the overall value of your estate, the allowances and exemptions available, and who inherits your assets.
However, the changes are likely to be most relevant if you:
- Own your home, with a small or no mortgage
- Have built up a sizeable pension over your working life
- Have additional savings or investments
- Want to leave as much as possible to your children or grandchildren
For many homeowners, their property and pension are their two biggest assets. Once both are included in the Inheritance Tax calculation, the value of an estate could increase significantly.
It’s also worth remembering that some exemptions will continue to apply. For example, assets left to a surviving spouse or civil partner are generally exempt from Inheritance Tax in many circumstances.
Because everyone’s financial situation is different, it’s important that you don’t assume these changes will affect you in the same way they affect someone else.
Why It’s Worth Planning Ahead
Although the new rules don’t come into force until April 2027, now is a good time to review your estate planning.
For some people, the changes may have very little impact, but for others, they could influence decisions about retirement income, gifting, or how different assets are passed on to loved ones.
Planning ahead doesn’t necessarily mean making major changes. Often, it’s just about understanding how your home, pension and other assets work together, and making sure your plans still reflect your wishes.
If you’re concerned about how these changes could affect your family, speaking to a qualified adviser can help you understand your options and make informed decisions based on your individual circumstances.
Planning for the Future With Access Equity Release
Every family’s financial situation is different, which means there’s no one-size-fits-all approach to planning for later life.
At Access Equity Release, we take the time to understand your circumstances, explain your options in plain English and help you make informed decisions about your future. If equity release could be suitable, we’ll explain how it works, the benefits and the potential drawbacks. If another solution is more appropriate, we’ll tell you that too.
Our advisers aren’t restricted to a panel of lenders and are authorised to advise on a range of regulated mortgage products, meaning you’ll receive recommendations based on what’s right for you.
If you’d like to understand your options and whether equity release could be right for you, our advisers are here to help. Get in touch for a no-obligation chat.
FAQs
Will My Pension Be Subject to Inheritance Tax From 2027?
From 6 April 2027, most unused pension funds will normally be included as part of a person’s estate for Inheritance Tax purposes if they die on or after that date. Whether any tax is actually payable depends on the value of the estate and any available allowances or exemptions.
Will Everyone Pay More Inheritance Tax?
No. The changes don’t automatically mean you’ll pay more Inheritance Tax. Whether tax is due depends on the value of your estate, who inherits your assets and the allowances and exemptions available.
What Happens if Someone Dies Before 6 April 2027?
The current rules will continue to apply if someone dies before 6 April 2027, even if their pension benefits aren’t paid to their beneficiaries until after that date.
Should I Review My Estate Planning Before the Changes?
If you own your home and have built up pension savings, it’s sensible to review your plans before the new rules come into effect. A qualified adviser can help you understand whether the changes are likely to affect your estate and discuss any options that may be appropriate.
Can Equity Release Help With Inheritance Planning?
For some homeowners, equity release can form part of a wider inheritance planning strategy. However, it isn’t suitable for everyone and may reduce the value of your estate. It’s important to take personalised financial advice before making any decisions.
