Pensions & Inheritance Tax 2027: The New Rules Are Now Law — What It Means for Your Family (UK)

Have you spent years being told that the smartest thing you can do with your pension is leave it untouched, so it passes to your children free of Inheritance Tax? And have you heard the rules are changing, but you're not quite sure whether it's actually happening — or what it really means for your family?

If so, you're in the right place. Because it is happening, and it's now law. In this article we'll cover exactly what changes on 6 April 2027, who is affected and who isn't, the surprise responsibility the new rules hand to your executors, and why the old advice about your pension may now be exactly backwards.

What Changes to Pensions and Inheritance Tax on 6 April 2027

For many years, most pension pots have sat outside your estate for Inheritance Tax purposes. You could pass away with money still in your pension, and in most cases it would go to your children without any Inheritance Tax at all. That is precisely why so much retirement advice followed the same pattern: spend your savings and investments first, and touch the pension last.

That door is now closing. The Finance Act 2026 received Royal Assent on 18 March 2026, and from 6 April 2027 most unused pension funds and pension death benefits will be counted inside your estate for Inheritance Tax. This isn't a proposal or a consultation any more — HMRC has published its technical note on Inheritance Tax and pensions setting out how the new system will work.

One important detail sits underneath the headline: it is the date of death that matters. If someone passes away before 6 April 2027, the current rules apply — even if the pension is paid out to their beneficiaries after that date.

Who Is Affected — and Who Isn't

Before anyone panics, some reassurance: most estates will still pay no Inheritance Tax at all. The main protections people rely on today carry straight over into the new rules.

Anything passing to your husband, wife or civil partner remains exempt, exactly as it is now. Death-in-service benefits — the lump sum paid if you die while still employed — are excluded from the changes. And the usual allowances, including the Nil Rate Band and the Residence Nil Rate Band (the "Home Allowance," as we often call it), still apply, meaning a married couple leaving the family home to their children and grandchildren can typically pass on up to £1 million before Inheritance Tax is due.

That said, the change has real teeth for the right — or rather, the wrong — circumstances. HMRC's own estimates suggest that around 10,500 estates a year will owe Inheritance Tax that wouldn't have before, and roughly 38,500 estates that already pay will pay more, with the average bill rising by around £34,000 once pension wealth is counted.

So this isn't everyone. But if you own your home and have built up a meaningful pension pot, there's a fair chance it's you.

The Part Nobody Is Talking About: Your Executors' New Job

Here's the detail that has received far less attention than it deserves. Under the new rules, it won't be the pension company that reports and pays this tax — it will be your personal representatives. For most families, that means the executors named in your Will: your spouse, your children, the people closest to you.

From April 2027, executors will need to contact every pension scheme the deceased ever belonged to, request valuations, work out the Inheritance Tax position, and pay any tax due by the end of the sixth month after the death — after which interest starts running on anything outstanding.

Where Inheritance Tax is likely to be due, the rules give executors a protective tool: they can instruct a pension scheme to withhold up to 50% of a beneficiary's pension entitlement, for a period of up to 15 months after the end of the month of death, so there's money available to settle the bill. Sensible in principle — but it means grieving beneficiaries can find themselves waiting well over a year for a substantial part of their inheritance.

Picture Mr and Mrs Smith's daughter. She's just lost her dad, and now finds herself project-managing three pension companies and HMRC simultaneously, chasing valuations against a six-month tax deadline. A little preparation now spares her an enormous amount of that. Even something as simple as keeping one clear, up-to-date list of every pension you hold — old workplace schemes included — makes your executors' job dramatically easier. HMRC itself makes exactly this point in its guidance.

Does "Spend the Pension Last" Still Make Sense?

This is the bigger strategic question the new rules raise. If pensions are no longer the Inheritance Tax shelter they once were, the traditional order of spending — everything else first, pension last — may now be backwards for some families.

To be clear: we are not financial advisors, and nothing in this article is financial advice. Decisions about how and when to draw your pension should be made with a qualified financial advisor. But from a purely Inheritance Tax point of view, the landscape has genuinely shifted, and it's worth knowing what still works.

Notably, HMRC has confirmed that the established lifetime gifting rules are unchanged. The seven-year rule still applies to gifts made during your lifetime, and the gifts from surplus income exemption continues to operate exactly as before — including where the income you're gifting from has been drawn from a pension. For some people, drawing on the pension earlier and making regular, structured gifts to family becomes a far more interesting conversation than it was a year ago. We've covered both of these in detail in our Learning Centre pieces on the 7-year rule and gifts from surplus income.

Everyone's situation is different, and this is one of those areas where the right answer depends entirely on yours — your assets, your family, your income needs, and your wishes.

This article is general information about UK estate planning and does not constitute legal or tax advice. Everyone's circumstances are unique — if you'd like to talk through yours, we'd love to help.

Talk It Through With Us

If the 2027 changes have left you wondering where your own estate stands, the easiest next step is a quick free chat. You can book a free, no-obligation 15-minute call with Gary — no pressure, no jargon, just a friendly conversation to help you feel more informed.

See our YouTube video on this topic here: https://youtu.be/-6-FYDXK42E