Pensions and IHT from April 2027: The Planning Window Is Now Eight Months Wide

The Finance Act 2026 received Royal Assent on 18 March 2026. Buried in it is the measure that will do more to reshape UK estate planning than anything else this decade: for deaths on or after 6 April 2027, most unused pension funds and pension death benefits fall inside the estate for inheritance tax.

That is eight months away. Every client whose plan was built on the assumption that a pension is the last asset to touch now has a plan that expires in April.

What Actually Changed, and What Did Not

The final legislation is meaningfully different from the original proposal, and advisers working from 2024 briefing notes will be giving out-of-date advice.

	Original proposal (Oct 2024)	Final position (Finance Act 2026)
Scope	Unused pension funds and death benefits in the estate	Unchanged
Reporting and payment	Pension scheme administrators	Personal representatives
Death in service benefits	In scope	Excluded, where paid from a registered scheme
Spousal and civil partner exemption	Retained	Retained, subject to long-term UK residence
Charity exemption	Retained	Retained
Effective date	6 April 2027	Unchanged

The two changes matter for different reasons. Moving liability to personal representatives removes an unworkable administrative burden from schemes but lands it on executors, who now need to identify every pension arrangement, obtain valuations, and settle the tax within the estate’s timetable. Excluding death in service benefits removes a substantial and politically difficult category from the measure entirely.

The government’s policy paper on unused pension funds and death benefits sets out the final scope.

Why the Old Advice Stops Working

Since 2015, the standard sequencing for a HNW client with sufficient other assets has been straightforward: spend the taxable estate, leave the pension untouched, pass it on. The pension sat outside the estate and, on death before 75, passed entirely free of tax.

From April 2027 that ordering inverts for a large group of clients. A pension held to death now attracts IHT at 40 per cent on the value above available nil rate bands, and where death occurs at or after 75 the beneficiary also pays income tax at their marginal rate on what they draw. The two taxes stack.

The arithmetic is uncomfortable enough that it needs saying plainly: for a higher or additional rate beneficiary inheriting a pension from a member who died after 75, the combined effective rate can exceed anything else in the estate. An asset that was the most efficient thing to leave becomes, for some clients, the least.

Where the Change Actually Bites

Not evenly, and this is where adviser judgement earns its fee.

Married and civil partnered clients on first death: largely unaffected. The spousal exemption survives, so the fund passes to the survivor without IHT. The exposure is on second death, which is where the planning conversation belongs.

Unmarried couples: hit hardest and soonest. No spousal exemption, no transferable nil rate band, and a pension that was previously the one clean asset to pass on. These clients need a review before anything else on the book.

Clients with large pensions and modest other assets: their whole plan is built on the wrong assumption. Many have been deliberately drawing minimal pension income for a decade.

Clients over 75 with adult children as beneficiaries: the double taxation case in its purest form.

Estates near the residence nil rate band taper: adding a pension to the estate can push total value over GBP 2 million and taper away the RNRB, producing a marginal rate well above 40 per cent on a slice of the estate. This interaction is easy to miss and expensive to miss.

The Eight Month Agenda

There is time to act, but not much, and some of the useful levers need years rather than months to work.

1. Rerun the drawdown sequencing. For many clients the answer flips: draw pension income earlier, use it, gift the surplus, and preserve other assets. This is not a small adjustment, it is the reversal of advice given consistently for a decade, and it needs to be documented as such.

2. Restart regular gifting. Pension income taken and immediately gifted under the normal expenditure out of income exemption is immediately outside the estate, with no seven year wait. The exemption requires a genuine pattern of gifts from income, which is precisely why starting it now rather than in March 2027 matters.

3. Review every expression of wish. Nomination forms drafted on the old assumptions may now direct funds in the least efficient possible direction. This is the cheapest, fastest and most commonly neglected action on this list.

4. Model the combined rate, not the IHT rate. A client shown a 40 per cent figure will not understand why their adviser is suggesting they spend a pension they were told to preserve. A client shown the combined IHT and income tax outcome, per beneficiary, will.

5. Reassess protection. Whole of life cover written in trust to meet an IHT liability becomes relevant for a group of clients who previously had no material IHT exposure at all. Price it before the market reprices it.

6. Look again at the assets you were sheltering. Where clients have used AIM portfolios for business relief, the interaction with the new pension position needs revisiting; our note on AIM portfolios and the new IHT cap covers that side of the picture.

The Executor Problem Nobody Is Talking About

Moving liability to personal representatives solved a problem for pension schemes and created one for estates.

An executor must now identify every pension arrangement the deceased held, obtain a valuation of unused funds, calculate the IHT attributable, and pay it. Schemes have no obligation to volunteer the information proactively, and beneficiaries may receive death benefits directly from a scheme before the executor has finalised the estate position.

Two practical implications for advisers:

• Client records are now an estate planning asset. A current, complete list of pension arrangements, with scheme contacts, saves an executor months. Most clients cannot name every arrangement they hold.
• Beneficiaries may need to fund tax on assets they have already received. Worth raising with clients now, in front of the beneficiaries where the relationship allows it.

The HMRC technical note sets out the reporting mechanics.

How to Run the Conversation

This is a difficult review to raise, because it involves telling clients that advice they were given, correctly, is being reversed by legislation. Three things make it go better.

Lead with the date, not the mechanism. April 2027 is concrete. The interaction between IHT and income tax on post-75 death benefits is not, and it is not what the client will remember.

Segment before you schedule. Unmarried clients, clients over 75, and clients with pension-heavy estates should be seen first. A blanket mailshot to the whole book generates volume without prioritisation.

Bring the beneficiaries in. This is a two generation conversation whether or not you treat it as one, and the firms that handle it well tend to retain the assets afterwards. Our note on intergenerational wealth transfer covers how to structure that, and structuring review meetings that add real value covers the meeting itself.

The Position in One Paragraph

For deaths on or after 6 April 2027, unused pension funds sit in the estate. Death in service benefits do not. Spouses, civil partners and charities are still exempt. Executors, not schemes, report and pay. The clients who need seeing first are the unmarried, the over 75s, and anyone whose estate plan assumed the pension was untouchable.

The rest of the tax year planning picture sits alongside this, and our guide to tax year planning for HNW clients in 2026/27 covers the allowances and deadlines that run in parallel.