Most people think of their pension as something separate from their estate. Money you have saved, yes — but not something that ends up on the taxman’s list when you die.
That assumption is about to become very expensive for a lot of families.
From 6 April 2027, most unused pension funds will be brought within the scope of inheritance tax (IHT) for the first time. If you have pension savings left when you die — and the rest of your estate is above the nil rate band — HMRC will want a share of that pension pot too.
A survey by Standard Life in February 2026 found that 89% of UK adults are unaware this change is coming. If that includes you, this post is worth reading before you do anything else today.
What’s changing, and why it matters
Right now, pensions are one of the most valuable things you can pass on to your family. Because they sit outside your estate for IHT purposes, they can be inherited free of the 40% tax that applies to the rest of what you leave behind. For that reason, many people deliberately leave their pension untouched for as long as possible, spending other savings and assets first.
From April 2027, that strategy stops working in the way it does today.
The government has confirmed that most registered pension schemes — including personal pensions, SIPPs and workplace defined contribution pots — will form part of your taxable estate when you die. Combined with assets you already hold, this could push many families well above the inheritance tax threshold without any change in their actual wealth.
The nil rate band — the amount you can leave before IHT applies — has been frozen at £325,000 since 2009 and will stay frozen until at least 2031. If you own a home and have any pension savings at all, there is a real chance your estate will be affected.
A simple example
Say you have a house worth £400,000 and a pension pot of £180,000 that you haven’t yet touched. Today, your pension sits outside your estate and IHT only applies to the property above the nil rate band.
From April 2027, the full picture changes. Your estate for IHT purposes would include both — and at 40% on the excess above your available thresholds, the tax bill could be substantial. Your beneficiaries receive less. The pension pot you spent decades building delivers less to your family than you planned.
This isn’t a niche issue for the very wealthy. It catches people with modest savings who simply haven’t had the chance to spend their pension down.
Does this affect everyone?
Not necessarily. A few things reduce the impact.
The nil rate band and residence nil rate band. You can currently leave up to £325,000 free of IHT, and if you’re passing your home to direct descendants, a further £175,000 residence nil rate band may apply — giving a potential total of £500,000 per person, or £1 million for a married couple using both allowances.
Spousal exemption. Assets passing between spouses and civil partners are still exempt from IHT, including pension benefits. The change bites when the second spouse dies and the estate passes to the next generation.
Defined benefit pensions. The rules are more complex for final salary schemes. If you’re in one, specific advice is worth getting before 2027.
But for many couples with property, savings and a pension, the combined effect of the frozen nil rate band and this new rule will mean their families face a larger tax bill than they’re expecting.
What can you actually do about it?
The good news is that there is still time to plan, and planning now makes a real difference.
Review your will. If your will was written before this change was announced, it almost certainly doesn’t reflect it. The way you’ve arranged who inherits what — and in what order — may need rethinking now that pensions are in the picture.
Consider a Trust. A well-drafted trust within your will can help protect what you pass on. It doesn’t shelter assets from tax that is legitimately due, but it does give you more control over how your estate is structured — and for some families, the right structure means less tax, or at least certainty that assets end up with the right people.
Think about spending order. If your pension is going to be taxed anyway, it may be worth discussing with a financial adviser whether it makes more sense to draw it down sooner and spend other assets later. That’s a financial planning question as much as a legal one.
Make sure your pension nominations are up to date. Most pensions are paid out according to an Expression of Wishes or Nomination Form rather than your will. That form controls who gets it. If you haven’t updated it recently — or ever — now is a good time to check.
What we can help with
At Puna Legal, we focus on wills, trusts and estate planning. We don’t advise on pension drawdown or investment strategy — for that, a regulated financial adviser is the right person. But when it comes to making sure your will and trust structure reflects your family’s situation and the changing tax landscape, that’s exactly what we do, every day.
If you haven’t reviewed your will since this change was announced, or if you don’t yet have a will, this is genuinely one of the better moments to sort it out. The deadline is April 2027 — but planning takes time, and wills drafted in a hurry rarely serve families as well as they should.
Single Wills from £149 including VAT. Trusts from £439. Fixed fees, agreed before we start.
Talk to us
The first conversation is free and there’s nothing to prepare. Call us on 0330 133 0930, email Nick@punalegal.co.uk, or get in touch here.
Based in Oxfordshire, advising clients across England and Wales.
This article is general information, not legal or financial advice. The right estate planning solution depends on your personal circumstances — please get in touch for advice tailored to you.