The government’s proposed Inheritance Tax (IHT) changes, due to take effect from April 2027, are front of mind for many of our clients. While the full details are still to be confirmed, we now have greater clarity on the direction of travel, and the potential impact could be significant.

We wanted to share our latest thoughts so you can start to consider how these rules might affect you and your loved ones, and what steps you can take now to prepare, without rushing into decisions you may later regret.

As always, it’s important not to let the “tax tail wag the investment dog”. Acting hastily could create new issues. For example, withdrawing pension funds you don’t actually need may simply move the problem elsewhere. In most cases, you would still have to find another investment wrapper for that money, which could trigger a different, and possibly earlier, tax liability.

Proposed Inheritance Tax changes mean unused pension funds will become part of your estate

From April 2027, the government plans to include unused pension funds as part of your estate for IHT. This means your loved ones might face a larger tax bill when you die, even though your pension was originally seen as outside the IHT net.

HMRC has made some changes to its original proposals and, while there is still uncertainty in some areas, we now have more clarity.

While some pension benefits are still exempt (like pensions left to a spouse or charity, joint annuities, or some death-in-service payouts), most other pension pots could now be taxed.

These changes are likely to lead to an increase in:

  • Work for families, as those handling your estate (personal representatives, or PRs) will now be responsible for reporting pension values and paying any IHT. This is a complex and time-consuming task
  • Costs, as many families may need to hire legal or tax advisers, reducing how much is left for beneficiaries
  • Delays, as these new rules could slow down how quickly money is passed on after someone dies.

We can discuss any potential impact of these changes with you at your next review

Planning ahead is key. If you’re unsure how these changes might affect your estate, your financial planner will discuss it with you at your next review.

This is also a good opportunity to check your pension nominations, update your will, and explore estate planning options to ensure everything is aligned with your wishes.

As the rules develop, we’ll continue to keep you informed and make sure you understand how any changes may affect your plans.

Get in touch

If you’d like to arrange your review, or talk to us about any other aspect of your financial planning, we’re always happy to help. Email hello@intelligentpensions.com or call 0800 077 8807.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

The Financial Conduct Authority does not regulate estate planning or tax planning.