The UK HMRC Inheritance Tax Changes 2027 for pensions are set for a major overhaul in April 2027. For many families, this could mean facing taxes on pension assets that were previously considered untouchable.
If you want a clear, reliable, and hype-free explanation of what’s changing—and how to prepare—this guide on the HMRC Inheritance Tax Changes 2027 will give you exactly that.
What’s Actually Changing in 2027?
Right now, most untouched pension pots can be passed to beneficiaries free of inheritance tax, especially if someone dies before reaching 75. These rules have allowed families to use pensions as a tax-efficient way to leave wealth behind.
But HM Treasury has confirmed that from 6 April 2027, some pensions will no longer automatically enjoy this protection. The aim is to reduce what they call “unintended pension tax advantages.”
Here’s what’s shifting:
- Certain pension pots may now be counted within the estate for inheritance tax.
- Lump-sum death benefits could face new IHT treatments.
- Beneficiaries may receive reduced payments or see funds reclassified.
- Executors will have more reporting obligations.
- HMRC will require detailed documentation on pension valuations.
For families who never worried about IHT, this could be a game-changer.
Which Pension Types Will Be Affected?
The changes won’t affect all pensions equally. Here’s a simplified breakdown of what to expect based on HMRC guidance:
| Pension Type | Before April 2027 | After April 2027 |
|---|---|---|
| Defined contribution pensions | Usually, IHT is free if uncrystallised | May be partially counted within the estate |
| Unused drawdown funds | Typically outside the estate | Likely assessed for IHT depending on the structure |
| Lump-sum death benefits | Often tax-free pre-75 | May face IHT or limited beneficiary options |
| Uncrystallised pension pots | Outside estate | Can become taxable based on the nominee structure |
| Dependants’ pensions | Taxed on beneficiary income | May trigger additional reporting or IHT review |
Who is most impacted?
- Individuals with large untouched pension pots
- Families relying on pensions for tax-efficient inheritance
- Estates close to the £325,000 nil-rate band threshold
If your estate already hovers near the threshold, even small changes to pension treatment could trigger significant tax liabilities. Learn more in our detailed guide: Tax Raid on Pensions 2027 – What’s Changing and How It Affects You.
Who Will Pay the Tax—and When?
The responsibility for paying IHT will depend on the circumstances:
- The beneficiary: If receiving a lump-sum death benefit, they may have to cover the tax.
- The estate: If HMRC categorises all or part of the pension as estate-chargeable, the estate may be liable.
- The executor: Executors must report the value and structure of the pension pot, and ensure tax compliance.
Timing can vary. Some pensions release funds immediately, while others only after probate, which can impact when the tax is due.
Executor Responsibilities in 2027
Executors will have more work to do under the revised system. These duties are likely to become standard:
1️⃣ Valuing pension pots
Pension providers must supply confirmed valuations, including any protected rights. Accurate valuation is essential because HMRC may challenge undervalued pensions.
2️⃣ Reporting to HMRC
Executors will need to submit more forms, provide additional evidence, and may face specialist reviews. Expect HMRC to scrutinise nominations and beneficiary arrangements.
3️⃣ Reviewing liquidity
If tax must be paid, the executor must determine how funds can be raised. This could involve selling assets, using estate cash, or coordinating with pension providers.
4️⃣ Ensuring compliance
Executors must cross-check death-benefit nominations, trust structures, and pension documentation to avoid penalties.
The takeaway: the 2027 system will require meticulous reporting and planning. UK savers can also read more about the broader context of pension changes in Rachel Reeves Pension Tax Relief Shake-Up: What UK Savers Need to Know in 2025
What You Should Do Before April 2027
Early preparation can make a significant difference to how much tax your family pays. Here’s a step-by-step planning framework:
1. Review all pension beneficiary forms
Out-of-date nominations are a common reason families fall into avoidable IHT. Make sure all forms are current, especially after marriage, divorce, or the birth of children.
2. Consider partial drawdown
For some individuals, withdrawing moderate amounts from pensions before death may reduce the estate’s IHT exposure. Planning partial withdrawals strategically could save thousands.
3. Assess lifetime gifts and trust structures
Gifting assets during your lifetime or using trust arrangements can sometimes preserve more wealth for beneficiaries. Consult a professional to understand what’s suitable for your situation.
4. Run an IHT scenario forecast
Consider how your estate plus pension assets might look post-2027. Modelling different outcomes helps identify potential IHT liabilities and plan accordingly.
5. Speak to a regulated financial planner
A small adjustment now may prevent a large tax bill later. Professional guidance is especially useful if your estate is complex or involves multiple pensions.
Common Mistakes People Make (That Will Matter More in 2027)
Even savvy individuals often make simple mistakes that could be costly:
❌ Assuming pensions automatically sit outside the estate – 2027 rules will change this for some types.
❌ Not updating nominations – life changes like marriage or children can invalidate old forms.
❌ Leaving a large untouched pot without a distribution strategy – passive planning may trigger IHT.
❌ Failing to consider multi-layer tax – income tax on death benefits plus IHT can compound unexpectedly.
❌ Relying on outdated tax assumptions – guidance pre-2024 may no longer apply.
Practical Examples
To illustrate the impact:
Example 1: Sarah, 68, has a £500,000 defined contribution pension. Pre-2027, this pot would pass IHT-free. Post-2027, part of it could be counted within her estate, potentially triggering £60,000+ in IHT.
Example 2: James, 72, leaves an uncrystallised pension to his adult children. Pre-2027, his estate pays nothing. Post-2027, depending on the nominee structure, HMRC may assess part of it as an estate chargeable.
These examples highlight why early action is crucial.
Final Words
The HMRC Inheritance Tax Changes 2027 aren’t something to panic over—but they are changes you can’t afford to ignore.
A clear review now—updating nominations, evaluating partial withdrawals, considering trusts, and speaking to a financial planner—can help ensure your family is prepared and avoid facing an unexpected inheritance tax bill later.
Preparation today is the key to protection tomorrow.
Related: HMRC Pension Tax Code Rule Change Explained for Pensioners
