Pension Inheritance Tax from April 2027: What to Do Now
— Written by David Gregory, Chartered Financial Planner.
Last reviewed: October 2026
What should you do before pensions enter inheritance tax on 6 April 2027? Review your estate, nominations, withdrawals, gifting and insurance.
From 6 April 2027, most unused pension funds will count as part of your estate for inheritance tax. The change has been enacted in Finance Act 2026 and applies to deaths on or after 6 April 2027. Start by estimating your estate including affected pensions and checking your beneficiary nominations; then review withdrawals, affordable gifts and insurance before making any changes. With about six months to go, there is time to plan properly, and this checklist works through what to review, roughly in the order it pays to do it.
First, the short recap. Today, pensions generally sit outside your estate, which has made them one of the most effective vehicles for passing on wealth. From 6 April 2027 that changes: unused pension funds and most death benefits will be added to everything else you own when inheritance tax is calculated, normally at 40% on the chargeable amount after available allowances, exemptions and reliefs. The nil rate band is £325,000, with a residence nil rate band of up to £175,000 when your home passes to children or grandchildren; both are frozen until 5 April 2031. The residence band also tapers away by £1 for every £2 your estate exceeds £2 million, and counting pensions in can push an estate over that line, so the new rules can reduce your allowances as well as increase your taxable wealth. Qualifying death-in-service benefits and dependants' scheme pensions remain excluded. The full mechanics are in our guide to the pension inheritance tax rules from April 2027.
Here is the checklist.
1. Find out whether this actually affects you
Start with arithmetic, not anxiety. Add up your estate as it will look from April 2027: property, investments, cash, business interests, and pension funds and death benefits within the new rules, less deductible debts, and allowing for any substantial gifts made in the last seven years. For couples, assess each death separately: up to £1 million of combined allowances may be available on the survivor's death where transferable allowances and the residence band conditions apply. If your totals sit comfortably below the thresholds, this change may cost you nothing, and the rest of this list is a watching brief rather than a to-do list.
2. Review your death benefit nominations
Your pension nomination records who you would like to receive your death benefits; in most schemes the trustees or provider retain discretion, guided by your expression of wishes. Two things to check now: that your nominees are up to date, and whether your scheme offers your beneficiaries suitable options, including drawdown where available, because how they draw the money will affect the tax they pay. This is the quickest item on the list, and many nominations were completed years ago under the old rules.
3. Remember the spousal exemption still works
Transfers between spouses and civil partners are generally exempt from inheritance tax (the exemption can be restricted where the recipient is not a long-term UK resident). For some couples, nominating the surviving partner defers the inheritance tax question to the second death, though it can also increase the survivor's eventual estate. Either way, it is the second death position that now needs the attention.
4. Rethink your withdrawal order
For years the standard logic was to spend other assets first and preserve the pension, precisely because it sat outside the estate. From April 2027 that logic weakens, and for some people it reverses. One point worth being clear on: withdrawing pension money and holding it as cash does not, by itself, remove it from your estate; it simply moves the value from one pocket to another. Whether to draw more from pensions during your lifetime, and give or spend the proceeds, depends on your income tax position, your age, and what you actually need to live on. This is the most individual item on the list and the one where modelling earns its keep.
5. Look at lifetime gifting
Outright gifts where you keep no benefit generally fall out of your estate if you survive them by seven years. On top of that, each person has a £3,000 annual gifting exemption per tax year in total, with one year's unused exemption carried forward. Regular gifts from surplus income can be immediately exempt where they form part of your normal expenditure and leave you enough income to maintain your usual standard of living; keep supporting records. Our guide to pension inheritance tax planning options goes deeper on gifting, trusts and insurance.
6. Consider life insurance written in trust
If a future inheritance tax bill is now predictable, one option is a whole of life policy written in trust, designed so the payout sits outside your estate and helps fund the tax bill, giving your family liquidity when it is needed. Premiums depend on age, health and policy terms; affordability over your lifetime matters, and cover generally depends on maintaining payments.
7. Understand the double tax point at age 75 and over
Where death occurs aged 75 or over, beneficiaries pay income tax on pension withdrawals at their own rates. From April 2027, inheritance tax can apply to the fund first, with income tax then due on what remains as it is drawn. As a conditional illustration: where a pension amount bears 40% inheritance tax and the remainder is withdrawn at the 40% income tax rate, the combined tax is 64%; at 45%, it is 67%. These are illustrations for the amounts affected, not rates that apply to every estate. This interaction is where nominations, withdrawal order and insurance all meet, and it is driving most of the planning conversations we are having.
8. Do not act in haste
The change has been enacted and applies to deaths on or after 6 April 2027, and HMRC is still finalising guidance on some implementation details. Six months is enough time to plan properly rather than react. Be especially wary of anyone urging you to move or strip out pension money quickly: withdrawals can have income tax consequences today that easily outweigh the inheritance tax saved tomorrow.
Frequently Asked Questions
Is the pension inheritance tax change definitely happening?
Yes. It was announced in the 2024 Autumn Budget and enacted in Finance Act 2026, which received Royal Assent on 18 March 2026. It applies to deaths on or after 6 April 2027. Some HMRC guidance on administration is still being completed, but the change itself is law.
Does this affect my spouse inheriting my pension?
Transfers to a spouse or civil partner are generally exempt from inheritance tax. The planning focus for couples is usually the position on the second death.
Should I take money out of my pension before April 2027?
Not as a reflex. Withdrawals can trigger income tax, although some tax-free cash may be available, and for many people drawing heavily would cost more than it saves. For others, a measured change in withdrawal order makes sense. It depends on your numbers, which is the point of reviewing them.
What should I do before the April 2027 pension inheritance tax change?
Estimate whether your estate including affected pensions will exceed the thresholds, then review your death benefit nominations. You can start both checks yourself without paying for advice, and they tell you how much of the rest applies to you.
Off Piste Wealth is an independent, whole of market financial advice firm in St James's Square, London, working with clients across London and Kent. Reviewing estates ahead of the April 2027 change is the most common planning conversation we are having this year, and every engagement starts with a free, no obligation discovery call.
Off Piste Wealth Ltd is an appointed representative of New Leaf Distribution Ltd, which is authorised and regulated by the Financial Conduct Authority. Off Piste Wealth Ltd's FCA register reference is 955277.
The value of investments can fall as well as rise and you may get back less than you invested. Tax treatment depends on individual circumstances and may change. Inheritance tax and estate planning are not regulated by the Financial Conduct Authority. This article is general information, not personal advice.