Could your pension push your estate into inheritance tax? What families should review before April 2027

From April 2027, most unused pension funds and pension death benefits will be included within a person’s estate for inheritance tax purposes. For many families, the change may affect not only the eventual tax position, but also whether an existing will, pension nomination and choice of executors still work together as intended.

For many years, pensions have occupied a separate place in estate planning. A house, savings, investments and personal belongings would ordinarily be considered when preparing a will and estimating the value of an estate, while pension benefits were often expected to pass separately under the rules of the pension scheme.

That distinction has shaped the decisions made by many families. Some people have deliberately preserved pension funds because they understood that those funds could usually pass outside their estate. Others have divided assets on the assumption that a pension would be received by one family member while property or savings passed to another under the will.

From 6 April 2027, that assumption will no longer be safe in many cases.

Under reforms enacted in the Finance Act 2026, most unused pension funds and pension death benefits will be included in the value of the deceased person’s estate for inheritance tax purposes where death occurs on or after 6 April 2027.

This does not mean that every pension will become taxable, or that every family should radically restructure its affairs. It does mean, however, that a pension which was previously regarded as separate from the estate may now affect the overall inheritance tax calculation, the amount ultimately received by beneficiaries and the responsibilities placed upon the executors.

For some people, the most important response will not be a complex tax arrangement. It will simply be recognising that a will written several years ago may now need to be read alongside pension nominations, current asset values and the new rules.

What is changing in April 2027?

For deaths occurring on or after 6 April 2027, most unused pension funds and pension death benefits will be treated as part of the deceased person’s estate when inheritance tax is calculated.

The change applies according to the date of death. If a pension scheme member dies before 6 April 2027, the current rules will continue to apply, even if the pension benefits are not paid to the beneficiaries until after that date.

The reform has now been enacted, although some of the administrative detail will be contained in secondary legislation and further HMRC guidance expected before implementation. HMRC published a detailed technical note in May 2026 explaining how it expects pension schemes, personal representatives and beneficiaries to interact under the new system.

The broad principle is nevertheless settled: pension wealth will no longer necessarily remain outside the inheritance tax calculation merely because the pension trustees have discretion over who receives it.

Most occupational and personal pension schemes operate on a discretionary basis. The member may complete an expression of wishes or beneficiary nomination, but the scheme trustees usually retain responsibility for deciding who receives the benefits. Trustee discretion will remain relevant to the distribution process, but it will no longer, by itself, prevent the pension value from being considered for inheritance tax.

Which pension benefits will be affected?

The rules are detailed, and the treatment of a particular benefit will depend upon the pension arrangement and the form in which benefits become payable.

Broadly, the new regime is intended to include most unused funds held in money purchase or defined contribution pensions, together with many lump sum and continuing benefits payable after the member’s death.

Some pension-related benefits will remain outside the new inheritance tax treatment. These include qualifying death-in-service benefits, certain dependants’ scheme pensions and some joint life or dependants’ annuities.

The distinction matters because the phrase “my pension” may describe several different arrangements. Someone may have a personal pension, an older workplace scheme, a self-invested personal pension, an annuity and a separate death-in-service benefit through current employment. Those benefits may not all be treated in the same way.

A sensible review should therefore begin by identifying the pension arrangements that actually exist, rather than assuming that all pension benefits will receive identical treatment.

Why ordinary family estates may be affected

Inheritance tax is still widely regarded as a concern limited to the exceptionally wealthy. In practice, rising property values, accumulated pension savings and frozen tax thresholds mean that families who do not consider themselves wealthy may nevertheless need to examine their position.

The standard inheritance tax nil-rate band is currently £325,000. A further residence nil-rate band of up to £175,000 may be available where a qualifying home is left to direct descendants, subject to the statutory conditions and tapering rules. Unused allowances may sometimes be transferred between spouses or civil partners.

The availability of these allowances depends upon the circumstances of the estate. It should not be assumed that every individual automatically has a £500,000 allowance, or that every married couple will necessarily have £1 million available on the second death.

The relevant thresholds have been fixed at their current levels through to the 2030 to 2031 tax year. As property and investment values change, freezing the thresholds can draw more estates into the inheritance tax system even without an increase in the headline tax rate.

Consider, for example, a widowed homeowner with:

• a home worth £650,000;

• savings and investments worth £100,000; and

• an unused pension fund worth £400,000.

Under the existing approach, attention may have centred primarily upon the £750,000 represented by the house, savings and investments. From April 2027, the pension could bring the estate considered for inheritance tax purposes to approximately £1.15 million.

That does not establish what tax would be payable. The answer would depend upon matters including available transferred allowances, whether the residence nil-rate band applies, debts, lifetime gifts, charitable gifts, the identity of the beneficiaries and the precise nature of the pension benefits.

It does demonstrate why a family may need to reconsider its position. An estate that once appeared to sit comfortably within available allowances may be much closer to the threshold, or above it, once pension wealth is taken into account.

Why this change should prompt a review of your will

A pension nomination and a will perform different legal functions.

A will ordinarily governs the assets forming part of a person’s estate and appoints the executors responsible for administering them. A "pension beneficiary nomination", sometimes called an expression of wishes, indicates whom the member would like to receive any pension death benefits. In many pension schemes, however, that nomination guides rather than binds the trustees or pension provider and is not equivalent to making a binding gift under a will.

The pension reform does not simply merge these two documents. Pension trustees may continue to exercise discretion, and pension benefits may still be paid directly to beneficiaries rather than passing through the executors’ hands.

The difficulty is that the pension value can now influence the inheritance tax payable across the wider estate, even though the pension and the assets governed by the will may still travel through different administrative routes.

That creates the possibility that a will and a pension nomination, each of which appears reasonable when read alone, may produce an unintended result when considered together.

Different beneficiaries may bear different consequences

Suppose a parent has nominated one child to receive a substantial pension but has left the house and remaining estate equally between three children.

The pension trustees may decide to pay the pension to the nominated child, while the executors distribute the estate according to the will. If the pension contributes to an inheritance tax liability, questions may arise about how that liability is allocated and whether the overall result still reflects the parent’s intentions.

The new rules include mechanisms intended to connect the tax burden with pension beneficiaries. Once pension property has become vested in a beneficiary, the beneficiary may become jointly and severally liable with the personal representatives for inheritance tax attributable to that pension property.

Even with those mechanisms, the administration may be more complicated than the family expected. The executors need information from the pension provider, the pension provider needs information about the estate and beneficiaries, and the tax calculation may need to be resolved before the estate can be distributed safely.

A review can therefore consider not only who is named in each document, but whether the intended division remains fair and workable after tax.

Second marriages and blended families require particular care

Pensions frequently play an important role in arrangements involving a second spouse, adult children from an earlier relationship and property intended to remain within a particular branch of the family.

A person may, for example, nominate a spouse to receive pension benefits while leaving other assets to children. Alternatively, the pension may be intended for adult children while the home passes to the surviving spouse.

Transfers between spouses and civil partners will generally continue to benefit from inheritance tax exemption where the statutory conditions are satisfied. That may defer rather than permanently remove the inheritance tax question, because the assets received by the surviving spouse may become part of that person’s estate in due course.

The tax position is only part of the analysis. A plan should also consider financial dependence, the survivor’s housing and income needs, the position of children from earlier relationships and whether the documents create a balanced result if family circumstances change.

Unmarried partners may be more exposed

The inheritance tax exemption available between spouses and civil partners does not generally extend to unmarried couples, regardless of how long they have lived together.

An unmarried partner who receives pension benefits may therefore face a materially different inheritance tax position from a spouse or civil partner. At the same time, an unmarried partner has no automatic entitlement under the intestacy rules simply because the couple lived together.

For cohabiting couples, it is especially important that wills, property ownership and pension nominations are examined together. Relying upon an assumption that a partner will “naturally receive everything” can leave significant gaps.

Why the choice of executor now matters even more

Why the choice of executor now matters even more.

Many people appoint executors because they are trusted relatives or close friends, without considering the level of judgement, organisation and financial confidence the role may eventually require.

Trust remains essential, but administering an estate can also involve something approaching a substantial business project. An executor may need to gather information from banks, pension providers, insurers, accountants and property professionals, compare valuations, manage deadlines, maintain accurate records and make decisions affecting tax, cash flow and the timing of distributions to beneficiaries.

From April 2027, personal representatives dealing with an estate that includes pension wealth may need to:

• identify all pension arrangements held by the deceased;

• contact each pension scheme, provider or relevant insurer;

• request valuations of pension property;

• establish the division between exempt and non-exempt beneficiaries;

• provide information to HMRC and pension administrators;

• calculate or arrange payment of inheritance tax;

• communicate with pension beneficiaries who may not also be beneficiaries under the will;

• consider how tax and administration expenses will be funded; and

• address amendments if further assets or pension arrangements are later discovered.

This may require a degree of commercial judgement as well as administrative ability. An executor may need to understand whether the estate has sufficient accessible funds, whether assets should be retained or sold, whether professional advice is required and whether a proposed distribution can safely be made before all tax liabilities have been resolved.

The role can become more demanding where the estate includes a business, investment property, land, overseas assets, several pension arrangements or beneficiaries with competing expectations. Executors may also find themselves managing disagreement at a time when family members are grieving and financial decisions carry emotional significance.

HMRC’s proposed system anticipates that pension administrators may need to exchange information with personal representatives before probate has been granted. Where there is a will, a copy of the will naming the executors may form part of the evidence used to establish who is entitled to act.

Choosing a capable executor does not necessarily mean appointing a professional or excluding family members. It does mean considering whether the proposed executor has the time, confidence, organisational ability and practical judgement to manage the role, seek advice when necessary and deal constructively with institutions and beneficiaries.

It may be appropriate to appoint more than one executor so that different strengths are represented, to name substitute executors in case the first choice cannot act, or to consider whether professional support is likely to be needed.

A will which names an executor who has died, lost capacity, moved abroad, become estranged from the family or is no longer willing or able to act should be reviewed regardless of the pension reforms. The new rules provide an additional reason to consider whether the person appointed is still suitable for what may become a significantly more complex responsibility. Many people appoint executors because they are trusted relatives or close friends, without considering the administrative demands that may eventually be placed upon them.

Pension nominations still matter

Because pension wealth is being brought within the inheritance tax calculation, some people may assume that beneficiary nominations will become irrelevant. That is not the case.

In a discretionary scheme, the trustees will generally continue to consider the member’s expression of wishes when deciding who should receive death benefits. The nomination may therefore remain highly influential, even though it is not usually binding in the same way as a gift under a will.

A nomination should be reviewed where:

• the nominated person has died;

• a marriage, divorce or separation has occurred;

• children or grandchildren have been born;

• the member has entered a new relationship;

• there are children from different relationships;

• a beneficiary has become financially vulnerable;

• the pension provider has changed;

• pensions have been consolidated; or

• the member’s intentions have changed.

A nomination made many years ago may no longer reflect the member’s family or financial circumstances. It may also be held by a pension provider whose existence the eventual executors do not know about.

Keeping an accurate record of pension schemes, policy numbers and provider contact details can therefore be nearly as important as updating the nomination itself.

Should people withdraw pension funds before April 2027?

The new rules may encourage some people to consider withdrawing pension funds, making gifts or changing investments before April 2027. That should not be done reflexively.

A pension is primarily intended to provide retirement income. Withdrawing funds may create an immediate income tax liability, reduce long-term financial security, alter entitlement to means-tested support, expose money to other risks or simply move value from one taxable part of the estate to another.

Lifetime gifts also have legal and tax consequences. A gift may not remove value from the inheritance tax calculation immediately, and gifts involving homes, continued personal benefit, trusts or financially vulnerable recipients require particular care.

The appropriate response will depend upon age, health, income requirements, family circumstances, pension type and the composition of the wider estate. Legal advice, regulated financial advice and tax or accountancy advice may all be relevant, but they address different parts of the problem.

The objective should be coordination, rather than a hurried attempt to remove pension funds from the new rules.

What should families review before April 2027?

A useful review would ordinarily consider the following:

• Your current will

Check when the will was made, who is appointed as executor and substitute executor, who receives the estate and whether the document still reflects present relationships, property and intentions.

• Pension beneficiary nominations

Obtain copies of the current nominations or expressions of wishes for each pension arrangement. Do not assume that a nomination completed for an earlier employer or provider automatically applies to a later scheme.

• The value of the whole estate

Prepare a broad schedule of property, savings, investments, business interests, life assurance, debts and pension arrangements. Precise valuations may not be necessary for an initial review, but substantial pension wealth should no longer be omitted from the discussion.

• Marriage, civil partnership and cohabitation

Consider whether spouse or civil partner exemptions may apply, whether unused allowances may be transferable and whether an unmarried partner is adequately protected.

• Family structure

Review arrangements involving children from earlier relationships, stepchildren, financially dependent relatives, vulnerable beneficiaries or family members whose expectations may differ.

• Liquidity

An estate can be valuable without holding much accessible cash. Property, land and business assets may be difficult to sell rapidly, while inheritance tax deadlines continue to apply. The source from which tax and administration expenses will be paid should be considered in advance.

• Executor capacity

Ask whether the chosen executors will be able to identify pension arrangements, communicate with providers and beneficiaries, obtain professional advice where required and manage potentially complex tax administration.

• Professional coordination

A solicitor can advise on wills, trusts, succession, executor powers and the legal structure of the estate. A regulated financial adviser can advise upon pension and investment decisions, while an accountant or specialist tax adviser may be needed for detailed tax calculations. The advice is most effective when each professional understands the overall plan.

---

Frequently asked questions

Will my pension definitely be subject to inheritance tax after April 2027?

Not necessarily. The reform brings most unused pension funds and pension death benefits within the estate for inheritance tax purposes, but whether tax is actually payable will depend upon the value of the estate, available allowances, exemptions, reliefs, the identity of the beneficiaries and the type of pension benefit involved.

Certain benefits, including qualifying death-in-service benefits and some dependants’ pensions and annuities, are excluded from the new treatment.

Does my pension now pass under my will?

Not automatically. Pension benefits may continue to be distributed under the rules of the pension scheme, often following a decision by the scheme trustees. The pension value may nevertheless be taken into account for inheritance tax purposes.

This is why the will and the pension nomination should be reviewed together, even though they continue to operate differently.

Will leaving my pension to my spouse avoid inheritance tax?

A payment to a qualifying spouse or civil partner may benefit from inheritance tax exemption, subject to the applicable statutory conditions. However, the value received may then form part of the survivor’s own estate, so the longer-term family position should also be considered.

Do I need a new will simply because the pension rules are changing?

Not everyone will need a completely new will. A review may confirm that the existing will remains suitable.

A review is particularly sensible where the will was prepared before the present pension arrangements were established, where asset values have increased substantially, where family relationships have changed or where the will and pension nominations benefit different people.

Is April 2027 too far away to review this now?

No. Gathering information about older pensions, obtaining copies of nominations, estimating asset values and coordinating legal and financial advice can take time.

The purpose of reviewing matters before April 2027 is not to predict the exact date on which an estate will be administered, but to ensure that the documents and arrangements already in place reflect the rules that are approaching.

A pension should no longer be treated as an afterthought

The significance of the April 2027 reform lies not only in the possibility of additional inheritance tax. It lies in the way pension wealth will become connected to the wider estate while continuing to be distributed through a separate pension process.

That intersection can expose weaknesses which were already present: an old will, an outdated nomination, an unsuitable executor, unequal arrangements between children, insufficient provision for a partner or a plan based upon asset values which have changed substantially.

For many families, a review will not lead to elaborate restructuring. It may instead result in a clearer will, updated pension nominations, better records and a more realistic understanding of what the executors and beneficiaries will face.

That is valuable planning even where no inheritance tax is ultimately payable.

About the author

Christopher Eddison-Cogan Managing Partner, Eddison Cogan Lawyers

Christopher is a dual-qualified solicitor in England and Wales and Australia with over twenty years’ experience in commercial and family matters. His work includes advising individuals, families and business owners where legal structure, financial planning, succession and long-term family considerations intersect.

Discussing your situation

The inclusion of pensions within the inheritance tax calculation from April 2027 provides a useful reason to review whether an existing will, pension nominations and executor appointments remain aligned.

Eddison Cogan Lawyers advises individuals and families on wills, estate planning and succession arrangements, including situations involving family businesses, blended families, international connections and changing financial circumstances.

---

The following note is included for clarity and completeness:This article is intended to provide general information about inheritance tax, pensions and estate planning in England and Wales. It does not constitute legal advice and should not be relied upon as such. The law may change over time, and the application of legal principles will vary depending on the specific circumstances of each case. Reading this article does not create a solicitor-client relationship.