What’s changing in April 2027?
Under today’s rules, most personal and workplace pensions sit outside your estate for IHT purposes. This has, historically, made pensions one of the most tax‑efficient ways to pass wealth between generations. For many people it shaped the order in which they planned to spend their wealth: using cash, individual savings accounts (ISAs) or other investments first, and pensions last.
From 6 April 2027, unused pension funds will generally be included within the value of your estate for IHT. An unused pension fund simply means any money in your pension that you haven’t drawn on yet.
Why is this happening?
The government is concerned that pensions – because of tax relief on contributions and tax‑free growth – are increasingly being preserved as legacy assets rather than being used to fund retirement. When people don’t draw from their pensions, tax revenues fall. Bringing unused pension funds into the IHT system is intended to close this gap.
Unused pension funds could be taxed at 40% on death if your estate exceeds available IHT allowances. Funds transferred to a spouse or civil partner remain exempt, meaning this change will mainly affect families on the second partner's passing away. It represents a meaningful shift, but understanding it now gives you time to prepare confidently.
What should you consider now?
The best first step is a step back. You may wish to review the following areas as part of your broader retirement and legacy planning.
1. Review your retirement income strategy
Many retirement plans have been built around preserving pensions for as long as possible. These new rules may change that balance. In some cases, drawing from pensions sooner and preserving more ISA or taxable investment assets for later life may create better outcomes – for both your retirement income and any plans you may have for your long‑term legacy.
2. Revisit your expression of wish
With pension funds forming part of your taxable estate from 2027, keeping your expression of wish up to date is more important than ever. Clear, current nominations help your beneficiaries and executors avoid uncertainty or delays.
3. Re‑examine your legacy plans
If you’ve viewed your pension as a legacy pot, this change may prompt you to reconsider whether making withdrawals or lifetime gifts is more effective. Conversations about inheritance, financial preparedness or how younger generations may manage funds can be sensitive. Starting early – while everyone is well and plans are clear – often leads to better outcomes. A financial planner can help you ensure everything is in order.
What actions should you take?
There’s no need for reactive or rushed decisions. The most important step is to review your retirement plan in light of the upcoming rules.
Our financial planners can help you assess your overall wealth including pensions, ISAs, investments, property, and life assurance – and how this change may affect your future. We’ll work with you to model your potential IHT exposure, plan your retirement income, and understand the most tax‑efficient way to pass on your wealth. Drawing from the right place at the right time is increasingly important.
Retirement planning has never only been about numbers. It’s about your lifestyle, your family and the future you want to shape. With thoughtful preparation and the right guidance, you can navigate this change with confidence and continue planning for what matters most.
If you’re ready to review your financial plan, please speak to your usual Rathbones contact or get in touch by filling out our enquiry form below. We’re here to help.
