April 2027: The biggest pension shake-up in decades — and what it means for your estate

For the full pillar guide and FAQ on this change, see our dedicated page at www.inheritancemadesimple.com/pension-inheritance-tax-2027/.

For more than a decade, pensions sat outside the inheritance tax net. They were the quiet, efficient way for a generation to pass real money to children and grandchildren without the state taking a 40% share at the door.

From April 2027, that ends. Unused pension funds will be brought inside the estate for Inheritance Tax. The Office for Budget Responsibility expects IHT receipts to climb past £14bn a year as a direct result. That money does not appear from nowhere — it comes out of family inheritances that were already planned, already promised, already counted on.

Today, if you die with money still in a defined contribution pension, in most cases it passes to your beneficiaries free of Inheritance Tax. That is why thousands of advisers — including me — have, for years, told clients to spend other assets first and leave the pension intact.

From 6 April 2027, that calculation flips. Unused pension funds will be added to the rest of your estate when calculating IHT. If your total estate (home, investments, ISAs, pensions, life policies not in trust) sits above the available nil-rate bands, the slice over the threshold is taxed at 40%.

For a couple with a £750,000 home, modest investments and a £600,000 pension between them, this is not a theoretical problem. It is a six-figure tax bill arriving at the worst possible moment for the family left behind.

The people walking into the largest bills are rarely the ones who feel wealthy. They are professionals in their late 50s and 60s who saved hard, paid down the mortgage and never drew the pension because they did not need to. They are business owners who built value inside a SIPP. They are widowed clients who inherited a partner's pension and assumed the tax-free status was permanent.

If any of the following apply, you are in scope: a pension pot above £200,000, a property in the South of England, a second home, a business interest, or a partner who is not your spouse. The combinations matter more than any single number.

I have sat with families who lost a parent in the months after a Budget change and watched the bill arrive. The grief is hard enough. Adding a tax demand the deceased could have planned around — but did not — is a wound that does not heal cleanly.

Most of the damage in estate planning does not come from market collapse or aggressive tax rules. It comes from poor structure, late decisions, and the very human instinct to leave the difficult conversation for another year. April 2027 removes that luxury.

There is no single fix and anyone offering one is selling, not advising. But there is a clear order of operations.

First, know your number. A proper estate valuation — including pensions on the new basis — tells you whether you have a problem at all. Many clients are relieved. Others discover a £300,000 liability they did not know existed.

Second, review who actually inherits. Spousal exemption still works. Nil-rate bands still transfer. Beneficiary nominations on pensions still matter. A 20-minute review of expression of wishes forms can change the outcome by tens of thousands.

Third, look at structures that move capital out of the estate cleanly: gifts within allowances, trusts that hold property or business interests, life policies written in trust to cover the residual liability, and — for the right client — Limited Liability Partnerships used to hold commercial or buy-to-let property in a way HMRC recognises.

Fourth, review the will and the Lasting Powers of Attorney. A will written in 2014 was written for a different tax world. An LPA missing from the file means none of the planning above can be executed if you lose capacity before April 2027.

April 2027 sounds distant. It is not. Trusts take time to settle. Gifts have a seven-year clock. Pension drawdown decisions made today shape the estate that exists in 2027. Anything you want in place by the deadline needs the design work done in 2026.

If your estate is likely to be exposed, the work to do is specific and finite. It is not a sales process. It is a structural review, followed by the small number of decisions that move capital by design rather than by default.

If any part of this lands close to home, the conversation is open. That is what we do.