Your Pension will Soon Be Subject to Inheritance Tax.

They have worked for 40 years to build a pension pot of just over £1.2 million. Their plan, like that of many families we advise, was to draw on other assets first. The pension was for the children. It was a tax-efficient legacy, protected from Inheritance Tax.

That protection is now under review. Proposed government changes, expected from April 2027, look set to bring unused pension funds into the scope of IHT for the first time. For decades, pensions have remained largely outside of a person's estate for tax purposes. This is a fundamental shift in the landscape.

The 40% Question

Inheritance Tax is charged at 40% on the value of an estate above the tax-free thresholds. The implication here is plain. A £1 million pension pot, which might currently pass to your children without an IHT charge, could face a £400,000 tax bill under the new regime. This single change dismantles a core assumption that has underpinned estate planning in the UK for a generation.

Anyone who has deliberately preserved their pension while spending down ISAs, bonds, or other investments must now re-evaluate that strategy. The maths has changed. The relative safety of different assets is no longer what it was.

Reviewing the Plan

This is not a reason to panic. It is a reason to plan. If pensions become taxable in this way, the structure of your will and your beneficiary nominations become even more critical. For some, a spousal bypass trust could be a necessary tool. These allow pension death benefits to be paid into a trust, managed by people you appoint.

This gives you control. It ensures the funds are used as you intended and protects the capital from a beneficiary's own life events, such as divorce. For expats, the situation is more complex, with UK domicile rules and local succession taxes creating more layers. The plan must account for all jurisdictions.

These are detailed conversations based on individual circumstances. If you feel it is time to have that conversation, we are here to talk through your position.