Pension Changes and Inheritance Tax Reform

What Happens from April 2027

by Rebekah Taylor

Major changes are on the horizon for how pensions are treated on death, with reforms due to take effect from 6 April 2027. These updates will significantly expand the scope of inheritance tax (IHT), bringing most unused pension funds into the taxable estate.

Although pensions have traditionally sat outside of an individual’s estate for inheritance tax purposes, this position will no longer generally apply once the new rules come into force.

A new concept: “notional pension property”

From April 2027, the value of unused pension savings and certain death benefits will be aggregated into what is referred to as notional pension property for inheritance tax purposes.

This means pension wealth will be treated in much the same way as other assets when calculating an estate’s overall tax liability.

The relevant value will normally be determined by the market value of the pension interests at the date of death, subject to limited exclusions set out in the legislation.

When the new rules apply

A key point of reassurance within the reforms is timing. Where death occurs before 6 April 2027, the current inheritance tax framework will continue to apply, even if pension payments are made after that date.

This creates a clear dividing line between the existing regime and the new rules.

Spouse and civil partner exemptions

Transfers to a surviving spouse or civil partner will generally remain exempt from inheritance tax, maintaining one of the most important reliefs in estate planning.

However, the exemption is not absolute. Where there are differences in long-term UK residency status between spouses, the availability of relief may be restricted, which can have unintended tax consequences in international families.

Charitable legacies and tax rates

The reforms also impact how charitable giving is assessed for inheritance tax purposes.

From 2027, pension assets will be included when determining whether at least 10% of an estate has been left to charity. Meeting this threshold can reduce the applicable inheritance tax rate from 40% to 36%.

In addition, where pension funds are directed to qualifying charities, these amounts will be included when testing whether the charitable threshold has been met.

The importance of valuation and administration

One of the practical consequences of the reform is that pensions will now need to be actively valued and reported as part of estate administration.

This is likely to increase the complexity of probate, particularly in estates where pension arrangements are multiple or not straightforward.

Executors will need to ensure accurate reporting and may need additional support in understanding how pension assets interact with other estate components.

What this means for planning

These changes reinforce the importance of taking a joined-up approach to estate planning. Pension nominations, Wills, and wider asset structures will need to be reviewed together rather than in isolation.

Individuals may wish to consider:

• How pension wealth fits into their overall estate value
• Whether beneficiary nominations remain appropriate
• The potential tax impact on intended beneficiaries
• The administrative burden placed on executors

How we can support you

At Harold G Walker Solicitors, Rebekah Taylor and Nicola Lowe assist clients in reviewing and adapting their estate planning in response to evolving legislation.

We can provide clear advice on how pension changes may affect your estate, help update your Will and nominations, and support executors dealing with more complex estates under the new regime.

Pension Inheritance Tax Changes: Your Questions Answered