Pensions update: Pensions will form part of your estate from April 2027

With just one year to go, individuals with pension savings should be aware of a significant shift in how wealth will be assessed for inheritance tax (IHT).

From 6 April 2027, unused pension funds and certain death benefits will be brought into scope for IHT. This marks a notable change from the current position, where pensions — particularly defined contribution schemes have generally sat outside of an individual’s estate.

The reform, introduced by HM Treasury and implemented by HM Revenue & Customs, brings pension wealth into closer alignment with other assets when considering intergenerational transfers.

A change in long-standing planning assumptions

For many years, pensions have held a unique position in estate planning.

Unlike property, savings or investments, pension funds have often been structured in a way that allows them to be passed on outside of the taxable estate. This has shaped how many individuals approach retirement and succession planning, often choosing to:

• Preserve pension wealth where possible
• Draw on other assets first in retirement
• Use pensions as a means of passing value to the next generation

From April 2027, that distinction begins to fall away.

By including unused pension funds within the estate for IHT purposes, pensions are no longer viewed purely as a retirement income vehicle, but as part of an individual’s overall wealth for tax.

What this means in practice

While the detail will depend on individual circumstances, the direction of travel is clear: pensions will no longer sit entirely outside the IHT landscape.

In practical terms, this means:

• The value of your pension may be added to your estate when calculating IHT
• This could push some estates above available thresholds, increasing potential tax exposure
• Existing strategies that relied on pensions being outside the estate may need to be revisited

It is important to note that this does not automatically result in a tax charge. As with all IHT considerations, the outcome will depend on the overall value of the estate, alongside the reliefs and allowances available.

However, for many individuals particularly those with significant pension savings alongside property or business interests, this change could materially alter their inheritance tax position.

A more complex tax interaction

One of the more nuanced aspects of this change is the interaction between inheritance tax and income tax.

Currently, pension death benefits can often be passed on tax-efficiently, particularly where death occurs before age 75. From April 2027, beneficiaries may instead face:

• Inheritance tax on the estate, including pension value
• Income tax when drawing pension benefits, depending on the structure and timing

This layering of taxes introduces a level of complexity that did not previously apply in the same way, and reinforces the need for coordinated planning.

Who is most likely to be affected?

The changes are likely to be most relevant for:

• Individuals with significant defined contribution pension savings
• Those whose estates are already close to or above IHT thresholds
• Families undertaking succession or intergenerational planning
• Business owners who have used pensions as part of a broader wealth strategy

Defined benefit (final salary) pensions are generally less affected in the same way, as they provide an income rather than a transferable fund, although specific death benefits may still need to be considered.

Planning will need to become more joined-up

Historically, retirement planning and estate planning have often been treated as related but separate exercises.

This change brings them much closer together.

Decisions such as:

• Whether to draw pension income earlier
• How to structure beneficiary nominations
• How pensions interact with other assets in the estate

will increasingly need to be considered as part of a single, coordinated strategy.

For some, this may mean rebalancing how and when wealth is accessed. For others, it may open up conversations around gifting, trusts or alternative planning structures, always with careful consideration of the wider tax implications.

At Ward Williams, this is an area where a joined-up approach is particularly important. Our private client and tax specialists work together to ensure pension decisions are aligned with wider estate planning objectives, rather than considered in isolation.

Timing matters

With the changes coming into force from April 2027, there is a window to review and where appropriate, adjust, existing arrangements.

That does not necessarily mean immediate or drastic action. However, it does create an opportunity to:

• Understand the potential future value of your estate
• Revisit assumptions that have previously underpinned planning decisions
• Ensure that pension arrangements still align with your long-term objectives

Frequently asked questions

What is inheritance tax (IHT)?
Inheritance tax is charged on the value of an individual’s estate on death. This includes assets such as property, savings and investments — and from April 2027, potentially pension savings. Amounts above available thresholds are typically taxed at 40%.

Are all pensions affected?
The changes are expected to apply primarily to defined contribution pensions, where there is an identifiable fund. Defined benefit schemes may be treated differently, although lump sum death benefits could still be relevant.

Will my pension definitely be taxed?
Not necessarily. Including pensions within the estate does not automatically create a tax charge. Whether IHT is payable will depend on the overall value of your estate and available reliefs.

Should I change how I take my pension?
Possibly, but this is not a one-size-fits-all decision. Drawing pension funds earlier may reduce the value of your estate for IHT purposes, but could increase your exposure to income tax during your lifetime.

Can I still pass my pension to my family?
Yes. Pensions can still be passed to beneficiaries. What is changing is the tax treatment, not the ability to transfer pension wealth.

What should I be doing now?
This is a point to review rather than react. Consider how your pension fits within your wider estate and whether your current strategy still reflects your intentions.

The inclusion of pensions within inheritance tax from April 2027 represents a structural shift in UK tax planning.

It reinforces the need to view pensions not in isolation, but as part of a broader financial picture where retirement income, wealth preservation and succession planning are increasingly interconnected.

If you would like to understand how these changes could affect your position, or sense-check whether your current arrangements still align with your objectives, please get in touch.

Call 01932 830664, email enquiries@wardwilliams.co.uk or visit www.wardwilliams.co.uk to speak with a member of the team.