Changes for Pensions and Estate Planning: What You Need to Know

New Inheritance Tax Changes for Pensions: How They Impact Your Estate

The UK government has announced major changes to private pensions and inheritance tax (IHT), effective 6 April 2027. Previously, many pension funds fell outside of an individual’s taxable estate, allowing beneficiaries to inherit tax-free or with minimal tax.

However, under the new inheritance tax rules, unused pension funds will now be included in a deceased person’s estate. Consequently, beneficiaries could face up to 40% Inheritance Tax (IHT) if the total estate exceeds the £325,000 nil-rate band.

As a result, these changes could impact thousands of people, making it essential to review estate plans and update Wills to avoid unexpected tax liabilities.

What’s Changing with Inheritance Tax and Pensions?

Currently, pensions provide an efficient way to transfer wealth outside of IHT regulations. Nevertheless, under the new rules:

✅ Unused pension funds will now be included in an individual’s taxable estate.
✅ If an estate exceeds £325,000, beneficiaries may face a 40% IHT charge on inherited pension funds.
✅ The government expects to raise £1.46 billion in additional tax revenue by 2030, impacting approximately 10,500 estates per year.

💡 Source: Financial Times – Changes to Inheritance Tax on Pensions

How Will Inheritance Tax Changes for Pensions Affect Estate Planning?

The upcoming inheritance tax changes for pensions mean individuals must review and adjust their estate plans to avoid large IHT liabilities. To stay ahead, here’s what you need to consider:

1. Review Your Will & Beneficiaries

  • Many existing Wills may not account for these pension changes.
  • Additionally, ensure your pension beneficiary nominations are updated to reflect the new rules.

🔹 Read More: Gov.uk – Guidance on Pension Inheritance Tax

2. Consider Pension Withdrawal Strategies

  • If you have substantial pension savings, consider withdrawing funds earlier to reduce your estate’s taxable value.
  • Furthermore, spending pension savings instead of other assets could help minimise IHT exposure.

💰 Related: MoneyHelper – When Should You Withdraw Your Pension?

3. Explore Tax-Efficient Inheritance Options

  • Gifting money before death can help reduce your estate’s taxable assets.
  • Moreover, trusts and estate planning tools may offer tax-efficient wealth transfer options.

📖 Further Reading: Which? Guide – Reducing Inheritance Tax Liability

New Administrative Responsibilities for Pension and Inheritance Tax Changes

These new rules also introduce additional tax-reporting obligations for estate executors:

  • Personal representatives (PRs) must work with pension providers to calculate and pay IHT.
  • In addition, estate distribution may be delayed due to the added complexity of pension tax reporting.

⏳ Learn More: The Times – Inheritance Tax and Pension Changes

Conclusion

The upcoming inheritance tax changes for pensions will significantly impact estate planning. To minimise tax liabilities, individuals should:

✅ Review their Will and estate plan
✅ Reassess pension withdrawal strategies
✅ Explore tax-efficient inheritance options

📢 Take Action Now

It’s crucial to consult a financial advisor or estate planner to ensure your wealth is transferred efficiently and tax-effectively. If you have an existing Will, ensure that this still meets your requirements. 

💡 Speak with a member of the team today to review your estate and pension strategy!