From April 2027, the UK Government will introduce a significant overhaul of inheritance tax (IHT) rules relating to pensions. 

Currently, most unused defined contribution pension funds, such as self-invested personal pensions (SIPPs) and personal pensions, are exempt from IHT making them a popular vehicle for tax-efficient wealth transfer. However, under the new rules, the full value of these unused pension pots will be included within the deceased’s estate for IHT calculations. 

Most welcome exemptions will remain including pensions left to a surviving spouse or civil partner and death-in-service lump sums will still escape IHT. For other beneficiaries, the implications could be dramatic. HMRC projects that around 213,000 estates with pension assets will be affected in 2027–28. Of those, approximately 10,500 will pay IHT for the first time, and another 38,500 will see an increased liability, averaging about £34,000 more. 

Reporting and payment procedures are also shifting. Personal representatives (PRs) will now bear the responsibility for valuing, reporting, and paying IHT on pension assets, rather than pension scheme administrators. Administrators must provide valuation details to executors within four weeks of death. All of this places additional burden on PRs who already have a difficult job on their hands.

Although the changes are a little way off yet, as with all estate planning, the sooner you plan the better. In conjunction with pension advisors, we can help you to assess your IHT position and explore strategies such as making lifetime gifts or the use of trusts to soften the IHT blow.

The 2027 pension IHT reforms reverse a long-held advantage, pulling pension wealth back into estate calculations and exposing many estates to tax. Now is the time to take action and make sure you are ready for the changes ahead.