What will happen to my pension under the 2027 inheritance tax changes?

From 6 April 2027, unused pension funds will be included in a person's estate for inheritance tax (IHT) purposes. IHT is the tax charged on the value of what you leave behind when you die — currently at 40% above the available threshold.

Under the current rules, pensions sit outside the IHT net. If you die before age 75, unused funds can pass to your chosen beneficiaries free of both IHT and income tax. If you die at 75 or over, beneficiaries pay income tax on withdrawals but still no IHT. This has made pensions one of the most widely used estate planning tools in the UK.

From April 2027 that changes. Unused pension funds will be counted as part of your taxable estate, meaning they could be subject to IHT alongside property, savings, and other assets. HMRC's own impact assessment estimates around 10,500 estates will face an IHT liability where previously they would not, and approximately 38,500 estates will pay more IHT than before, with an average increase of around £34,000 per affected estate.

If you are in drawdown — drawing income directly from your pension pot rather than through an annuity — the unspent portion is the part that would fall into the estate under the new rules.

Because the change affects how pension wealth, wills, and estate planning interact, it is worth reviewing existing arrangements well before April 2027 rather than waiting.

A regulated financial adviser can assess how the 2027 changes apply to your specific circumstances and help you consider your options.