UK Pensions & Inheritance Tax: The April 2027 Guide for Expats

A practical guide to understanding how the inheritance-tax treatment of pensions is changing from 6 April 2027 and what it means for your retirement and estate planning.

From 6 April 2027, most unused pension funds and pension death benefits will be brought within the value of a deceased person’s estate for UK Inheritance Tax purposes. That is a significant change, but it does not mean everyone should immediately withdraw, transfer or restructure their pension.

• Understand what is changing from April 2027
• See how pensions will interact with the wider estate
• Review beneficiaries, withdrawals and estate planning without making unnecessary changes

The rules are changing, but the purpose of your pension has not

The major change is straightforward.

For deaths on or after 6 April 2027, most unused pension funds and pension death benefits will be included in the deceased person’s estate for Inheritance Tax purposes. Personal representatives will generally be responsible for reporting and paying any IHT due on the pension element of the estate.

That changes an important part of pension estate planning.

Historically, many discretionary pension arrangements have usually sat outside the estate for IHT purposes. This encouraged some people to preserve pension assets specifically because they could potentially be passed to the next generation outside the estate.

From April 2027, that distinction becomes much less useful for most unused pension wealth.

But the wrong conclusion would be:

“My pension may now be subject to IHT, so I should take the money out.”

That could simply move money from one part of the estate to another.

It could also create Income Tax, reduce the amount remaining invested within the pension and weaken the retirement-income strategy.

The pension still has a primary job:

funding retirement.

The new rules mean estate planning needs to be reviewed alongside that job, not placed ahead of it automatically.

Who is this guide for?

This guide is designed for people with UK pension wealth who want to understand how the April 2027 changes affect their retirement and estate planning.

It may be particularly useful if you:

• hold a substantial defined contribution pension
• have deliberately preserved pensions for your children or other beneficiaries
• are already retired but have not needed to draw heavily from your pension
• are approaching retirement and deciding which assets to spend first
• have previously been told to spend non-pension assets before pension assets for inheritance-tax reasons
• live outside the UK but may still fall within the UK IHT regime
• expect to return to the UK
• have nominated children or other non-spouse beneficiaries
• hold several pensions and want to coordinate beneficiary nominations
• are reviewing wills, trusts and pension death benefits together
• want to understand whether your retirement withdrawal strategy should change

The important point is not to react simply because a rule is changing.

It is to identify whether the change materially affects your own plan.

Review the estate, not just the pension

The April 2027 change should trigger a wider review.

1. PENSION

How much pension wealth do you hold?

What type of pension is it?

What death benefits does the scheme provide?

2. ESTATE

What other assets do you own?

Property.

Investments.

Cash.

Business interests.

Other assets.

The pension now needs to be considered as part of that wider picture.

3. BENEFICIARIES

Who is expected to inherit?

A spouse or civil partner?

Children?

Other family members?

A charity?

Different beneficiaries can produce different estate-planning outcomes. Transfers to a spouse or civil partner are generally exempt from IHT, subject to the applicable rules.

4. RETIREMENT INCOME

Do you actually need the pension to fund retirement?

Taking money out purely to avoid a future IHT charge can create a completely different tax and investment problem.

5. TAX

Consider both IHT and the Income Tax treatment of inherited pension benefits.

They are not the same tax.

HMRC confirms that the existing Income Tax rules on pension death benefits will continue to interact with the new IHT regime. For example, the member’s age at death remains relevant to the Income Tax treatment of many pension death benefits.

6. PLAN

Only then decide whether anything should change.

The April 2027 reform is a reason to review the plan. It is not a deadline to empty, transfer or restructure your pension.

Frequently asked questions

Are pensions becoming subject to Inheritance Tax from April 2027?

For deaths on or after 6 April 2027, most unused pension funds and pension death benefits will be brought within the value of the deceased person’s estate for IHT purposes. There are specific exclusions, so not every pension-related benefit is treated identically.

Does the change apply if I die before 6 April 2027?

No. HMRC states that if the pension scheme member dies before 6 April 2027, the current rules apply even if the pension benefits are paid to beneficiaries after that date.

Are death-in-service benefits included?

Registered-scheme death-in-service benefits are specifically excluded from the new IHT rules.

Will a pension inherited by my spouse be subject to Inheritance Tax?

Transfers to a surviving spouse or civil partner are generally covered by the normal IHT spouse or civil-partner exemption, although the wider residence position and individual circumstances should still be checked.

Could my beneficiaries pay both Inheritance Tax and Income Tax?

Both taxes can be relevant, but the interaction is more nuanced than simply charging both on the same gross amount. HMRC has legislated mechanisms so that pension benefits used to bear IHT are taken into account when calculating taxable pension income.

Should I start withdrawing my pension before April 2027?

Not simply because the rules are changing. Withdrawals can create Income Tax, move money into another part of your estate and affect the sustainability of your retirement plan. The decision should be based on your full retirement, tax and estate position.

About Josh Clancey

Josh Clancey is a cross-border financial planner based in Dubai, working with British expats and internationally mobile families on pensions, retirement planning and estate planning.

His approach is to consider pension decisions alongside the wider financial plan rather than reacting to tax changes in isolation.

For the April 2027 pension reforms, that means reviewing retirement income, beneficiary planning, other estate assets and the client’s UK IHT exposure before deciding whether any change is genuinely worthwhile.