Is Your Estate Ready for the 2027 Inheritance Tax Changes?
Inheritance tax is changing – and the April 2027 deadline is closer than most people realise.
For many families who have assumed they wouldn’t be affected by IHT, these changes could mean a significant and unexpected tax bill. And perhaps most importantly, pension planning and estate planning have traditionally been thought of as two separate things. From April 2027, that distinction disappears.
IHT thresholds have already been frozen until April 2031, and rising property values have quietly pulled more and more estates into IHT territory over recent years. The 2027 pension changes will accelerate that further – and for some families, the impact will be considerable.
In this article we cover what’s changing in April 2027, who will be affected, and what you can do now to prepare.
What Is Changing in April 2027?
From April 2027, most unused pension funds and pension death benefits will be included in a person’s estate for IHT purposes.
This is a significant shift. Currently, many pensions sit outside of a person’s estate for IHT purposes – which has made them a popular and tax-efficient way to pass wealth to the next generation. From deaths on or after 6 April 2027, most unused pension funds and relevant death benefits will be considered alongside assets such as your home, savings and investments when valuing your estate.
There are some exemptions worth noting. Death-in-service benefits payable from registered pension schemes and certain dependant’s scheme pensions fall outside the scope of the new rules. The existing IHT exemptions for assets passing to a surviving spouse or civil partner, or to a registered charity, will also continue to apply.
But the headline message is clear: pensions can no longer be viewed separately from the rest of your estate. If you haven’t reviewed your position with that in mind, now is the time to do so.
Who Will Be Affected by the 2027 Changes?
The change will affect anyone who expects to leave an unused pension pot behind when they die.
For some, the addition of a pension to the estate will push them over the IHT threshold for the first time. For others – those already above the threshold – it will increase the overall liability their beneficiaries face. And for people who have deliberately kept pension funds unspent as a tax-efficient way to pass wealth to the next generation, the strategy will no longer work in the same way.
Married couples and civil partners are both affected. People who have done estate planning without factoring in pension assets are affected. And people who simply haven’t thought about this yet are affected too.
The standard nil rate band remains £325,000, and the residence nil rate band is £175,000 where the relevant conditions are met – though this begins to taper for estates valued above £2 million.
The precise position depends entirely on your individual circumstances. The starting point should never be to assume you will – or won’t – have an IHT problem. It should be to calculate your position properly.
How Could the Pension Changes Affect Your Estate?
If Your Estate Is Currently Below the Threshold
Adding an unspent pension pot could push your estate above £325,000 – or above the £500,000 combined threshold – for the first time.
HMRC estimates that in 2027-28 around 10,500 estates could become liable for IHT that would not previously have had a liability, while approximately 38,500 estates could pay more than they currently would. The government estimates the average additional IHT liability among affected estates could be around £34,000 – though individual circumstances will vary considerably.
If Your Estate Is Already Above the Threshold
Your estate may currently be above the IHT thresholds – and adding pension funds will increase the overall liability your beneficiaries face. Planning ahead now gives you the most options to mitigate that impact.
If You’ve Used Your Pension as a Wealth Transfer Tool
Many people have kept pension funds unspent specifically to pass them on free of IHT. That strategy will no longer work in the same way from April 2027 – and for those affected, it could mean beneficiaries receive significantly less than expected.
The advantage of reviewing your position now is that there may still be time to consider legitimate estate planning options. Waiting until 2027 means discovering the problem when it’s too late to do much about it.
What Other Inheritance Tax Changes Should You Be Aware Of?
The pension changes aren’t happening in isolation. From April 2026, there are also new rules for Agricultural Property Relief and Business Property Relief.
Under the current rules, 100% relief on qualifying agricultural and business property is now limited to a combined £2.5 million allowance per individual. Qualifying value above that allowance generally receives 50% relief.
For family farms and business owners, this is a significant change – and one that makes early succession planning more important than ever. The overall direction of travel is clear: more estates will pay more IHT. Getting proper advice now is the best response to that.
What Can You Do Now to Prepare?
Review Your Estate as a Whole
The first step is to consider your property, savings, investments, pensions and business interests together – not separately. A piecemeal approach is no longer enough. Understanding the full picture is the starting point for any effective planning.
Review and Update Your Will
A will that doesn’t account for the pension changes may not achieve what you intend. Trust arrangements and the way assets are structured may need revisiting, and it’s worth considering whether your current executor and trustee arrangements are still appropriate given the changed landscape.
Update Pension Nomination Forms
Check who you have named as your pension beneficiary – and do it before April 2027. Out of date nomination forms can cause real problems both practically and from a tax perspective. This is one of the simplest things you can do and one of the most commonly overlooked.
Consider Your Lifetime Gifting Strategy
Lifetime gifting plays an important role in estate planning. Making use of your annual gift allowance now can help reduce your overall IHT bill. You can currently give away £3,000 per year – or £6,000 if you haven’t used the previous year’s allowance.
Regular gifts from surplus income is one of the most underused exemptions available – and one of the most powerful for those with pension, investment or rental income.
For larger gifts, the seven year rule applies. Gifts made now have the best chance of falling outside your estate before the 2027 changes come into full effect. Every year of planning makes a meaningful difference.
Consider Trust Planning
Certain trusts can remove assets from the taxable estate. The rules are complex and have changed recently, so professional advice is essential before putting anything in place. It’s worth exploring as part of a wider review rather than in isolation.
Take Professional Advice Now Rather Than Later
Some planning options take years to take full effect – the seven year rule being the most obvious example. Waiting until 2027 leaves far fewer options available. A free initial consultation costs nothing and gives you a clear picture of where you actually stand.
What Happens If You Do Nothing?
Your estate may face a higher IHT bill than is necessary. Beneficiaries could receive significantly less than you intended. And opportunities to reduce the liability legally may be lost – because some of the most effective planning options simply take time.
The earlier you understand your position, the more opportunity you have to do something about it.
Frequently Asked Questions
When do the pension IHT changes come into effect?
The new rules apply where the pension scheme member dies on or after 6 April 2027. If someone dies before that date, the current rules apply even if pension benefits are subsequently paid after that date.
Will my pension automatically be included in my estate from April 2027?
In most cases, yes – unused pension funds will be brought into your estate for IHT purposes from April 2027.
Does the change affect defined benefit pensions as well as defined contribution?
Potentially yes, but this depends on your individual circumstances. It’s worth taking specific advice on your position.
What if I’ve already nominated my children as pension beneficiaries?
Your nominations should be reviewed alongside your wider estate planning arrangements in light of the changes.
How much IHT will my estate pay on my pension from 2027?
This depends entirely on your individual estate. IHT is generally charged at 40% above the available thresholds.
Can I reduce my IHT liability before the changes come in?
Depending on your circumstances, yes – lifetime gifting, trust planning and a review of your overall estate are all worth considering. Professional advice will help identify the most appropriate options for your situation.
Does this affect the nil rate band?
No. The nil rate band threshold remains at £325,000 and depending on your circumstances you may also qualify for the residence nil rate band of £175,000.
Should I spend my pension before I die to avoid IHT?
Your pension has been built for your retirement and spending it down simply to avoid IHT may not be the best approach. There are often more effective options worth exploring first.
What is the best way to pass wealth to my children tax efficiently?
This depends on various factors including the size and composition of your estate – which is exactly why proper estate planning advice is so important.
Common Mistakes to Avoid
Assuming the changes don’t apply to you without checking the figures is the most common mistake – and potentially the most costly.
Treating your pension and your estate as two separate things is no longer appropriate from April 2027. Not updating pension nomination forms before the changes come into effect is a straightforward oversight that can have significant consequences.
Waiting until April 2027 to take action leaves far fewer planning options available – some of the most effective strategies take years to implement. And trying to navigate rules this complex without specialist advice is a risk not worth taking.
How Liberay Legal Can Help Bolton Residents
At Liberay Legal, we offer specialist wills and estate planning advice across Bolton and the surrounding area. Led by Lisa Kirk, Head of Private Client, our team looks at your estate as a whole – property, savings, pensions, business interests – and provides plain English advice tailored to your specific circumstances.
We can help with wills, trusts, Lasting Powers of Attorney and wider IHT planning, all under one roof.
The Time to Act Is Now – Not Later
Inheritance tax planning can feel complicated – particularly when the rules themselves are changing. But at its heart, estate planning is about one thing: making sure what you’ve worked hard to build goes to the people you love.
If you live in Bolton or the surrounding area and would like to understand your position before the April 2027 changes come into effect, get in touch today for a free initial consultation. No jargon, no obligation – just clear, practical advice when it matters most.
Contact us here or call 03330 115 105.
