Pensions Enter the Inheritance Tax Net in April 2027: What Estate Planners Should Do Now

For most of the last twenty years, pensions have sat outside the estate for inheritance tax. That is about to end. From 6 April 2027, most unused pension funds and pension death benefits will be counted when valuing an estate for IHT in England and Wales.

For Will writers, solicitors, estate planners and financial advisers, this is one of the largest review opportunities the sector has seen in years. Every client with a defined contribution pension and an estate near the threshold now has a reason to come back through your door.

What exactly is changing on 6 April 2027?

The change was announced at the Autumn Budget 2024 and taken forward through the Finance Bill. From 6 April 2027, most unused pension funds and death benefits will be brought into the value of the deceased person's estate for inheritance tax purposes.

In practice that means a pension pot which would previously have passed to children free of IHT may now be taxed at 40 per cent above the available nil rate band, which currently stands at £325,000. Pension values will also count towards the £2 million taper threshold that reduces the residence nil rate band, so some estates will lose relief they were relying on.

HMRC has estimated that of roughly 213,000 estates including pension wealth in 2027 to 2028, around 10,500 will face an inheritance tax charge as a result.

Which pension funds are caught, and which are not?

The headline makes it sound universal. It is not. Broadly, the following are brought into scope:

• Personal and occupational defined contribution pension funds that remain unused
• Uncrystallised funds and residual drawdown funds not yet annuitised
• Inherited pension funds still held in drawdown

Important exclusions remain:

• Death in service benefits paid from a registered pension scheme are excluded
• Funds passing to a surviving spouse or civil partner keep the existing spousal exemption
• Funds passing to a registered charity remain exempt

There is also a second layer that clients frequently miss. Where the member died aged 75 or over, beneficiaries already pay income tax on what they withdraw. Combine that with an inheritance tax charge and the effective rate on some pots becomes very high indeed.

Why does this land on personal representatives?

This is the part professional firms need to prepare for operationally. Following consultation, the government confirmed that personal representatives, meaning executors and administrators, will be responsible for valuing the estate, reporting to HMRC and paying any inheritance tax due on unused pension funds.

That is a meaningful expansion of the executor's job. An executor must now identify every pension the deceased held, obtain valuations from each scheme, and account for them alongside the rest of the estate. Where the tax attributable to a pension is at least £1,000, there is a mechanism allowing the scheme administrator to be directed to pay it, and the scheme must then pay HMRC within 35 days of a valid notice.

If your clients appoint family members as executors, and most do, those executors are walking into a materially harder task from April 2027.

What does this mean for existing Wills?

A great many Wills were drafted on the assumption that the pension sits outside the estate and passes by nomination, while the Will deals with everything else. That assumption is about to stop being safe.

Points worth revisiting with clients include:

• Expression of wish and nomination forms, which are often years out of date and may no longer produce the intended outcome
• Whether the previous strategy of preserving the pension and spending other assets still makes sense, since the pension is no longer a shelter
• Legacies expressed as fixed cash sums, which can distort badly once a pension is added to the estate value
• Whether the estate will have enough accessible liquidity to meet a larger tax bill
• Whether trust or life cover arrangements should form part of the plan

None of this is a reason to panic clients. It is a reason to review, and the window before April 2027 is the time to do it.

How should firms turn this into a client review programme?

The firms that benefit will be the ones that contact their back book systematically rather than waiting for enquiries. A simple approach works well:

1. Segment your existing client list by those likely to hold a defined contribution pension
2. Send a plain English explanation of the change and what it may mean for them
3. Offer a review appointment with online booking, so nobody has to play telephone tag
4. Follow up automatically by email, SMS and WhatsApp for those who do not respond first time
5. Route the genuinely complex cases to a specialist adviser and keep the straightforward ones in house

Doing that manually across a few hundred clients is a full time job. Doing it with automation is an afternoon of setup.

How can Ai Wills help you handle the volume?

Ai Wills gives estate planning firms a white label platform to run exactly this kind of campaign under their own brand. Clients can start their Will or review online at their own pace, enquiries are nurtured automatically by email, SMS, WhatsApp and Voice AI, and appointments book straight into your calendar.

The Executor Toolbox is particularly relevant here, because it gives clients a secure place to record pensions, policies, accounts and key contacts. That is precisely the information their executors will need to gather from April 2027.

Frequently asked questions

When do the new pension inheritance tax rules start?

They apply to deaths on or after 6 April 2027. Until then the current treatment continues to apply.

Are all pensions caught by the change?

No. Most unused defined contribution funds and pension death benefits are brought into the estate, but death in service benefits paid from a registered pension scheme are excluded, and funds passing to a spouse, civil partner or registered charity keep their existing exemptions.

Who has to report and pay the tax?

Personal representatives, meaning the executors or administrators of the estate, are responsible for valuing the estate, reporting to HMRC and paying any inheritance tax on unused pension funds.

Should clients rewrite their Will now?

Not necessarily rewrite, but review. Many Wills were drafted assuming the pension sat outside the estate, so the distribution and any fixed cash legacies should be checked against the new position.

Does this apply in Scotland and Northern Ireland?

Inheritance tax is a UK wide tax, so the pension change applies across the UK. The succession and probate rules referred to in this article are those of England and Wales.

This article is general information about the law of England and Wales as it stands in 2026 and is not legal, tax or financial advice. Clients should take advice on their own circumstances before acting.