Your Pension and Inheritance Tax: What Changes in April 2027

Your pension statement arrives once a year. It has a number on it, and for most people that number has always meant the same thing: this is what I have for later. From 6 April 2027, the same number means something else as well. It becomes part of what the taxman counts when you die.

This is the document most people in their late fifties and early sixties have sitting in a drawer right now. The statement looks identical to last year's. The rules behind it do not. The Finance Act 2026 confirmed that unused pension funds will be treated as part of your estate for inheritance tax from April 2027, and the year you are in now is the last full one before that happens.

This guide explains what the change is, how to work out whether it touches you, and what you can still do in the 2026/27 tax year while the current rules apply.

Are pensions subject to inheritance tax from April 2027?

From 6 April 2027, unused defined contribution pension funds will be included in the deceased's estate for inheritance tax purposes under the Finance Act 2026. Until that date, most unused pension pots pass outside the estate and are not counted.

A defined contribution pension is a pot of money built up from contributions and investment growth — a personal pension, a SIPP, or most modern workplace schemes. Until now, if you died with money still in that pot, it usually passed to your chosen beneficiaries without an inheritance tax charge. That is the part that changes.

Inheritance tax is a 40% charge on the value of an estate above the available nil-rate band. The standard nil-rate band is £325,000. There is a further £175,000 residence nil-rate band where a main home passes to children or grandchildren. Below those thresholds, there is no inheritance tax to pay. Above them, the rate is 40%, and from April 2027 your pension is part of the sum being measured. You can read the current thresholds on the HMRC inheritance tax page.

The State Pension is not affected. It stops when you die and there is no fund to pass on. The change is about private pension savings — the pots you have built yourself or through an employer. If you are still working out how those pots fit your wider plan, our financial planning service in Sheffield looks at the whole picture rather than one product at a time.

How do I work out my inheritance tax exposure?

Start with everything you own, then add the pension. Your estate is your home, your savings, your investments, any other property, and from April 2027 your unused pension funds. Add it all up, then take off any debts and the nil-rate bands you can use.

Take a couple with a home worth £450,000, savings and investments of £150,000, and pension pots totalling £300,000. That is a £900,000 estate. With both nil-rate bands available between them, a married couple can often pass on up to £1,000,000 before inheritance tax applies — so under today's rules this couple might expect no charge. The pension change does not alter their thresholds, but it does pull £300,000 of previously separate money inside the line being measured. For an estate already near the threshold, that £300,000 is the difference between nothing to pay and a 40% bill.

Two things make this harder to eyeball than it looks. Thresholds depend on marital status, on whether a home passes to direct descendants, and on what a surviving spouse has already used. And pension values move — the statement number this year is not the number your estate is measured against later. This is the point where a calculation on the back of an envelope stops being reliable. If you are within a few years of stopping work, our guidance on retirement planning in Sheffield covers how pension income and estate exposure interact.

What does the 2026 planning window allow?

The 2026/27 tax year is the last full tax year before unused pensions enter the estate for inheritance tax. Decisions made before 6 April 2027 are assessed under the current rules, which is why this year carries more weight than a normal one.

Three levers are worth understanding now. The first is lifetime gifting. You can give money away during your lifetime, and gifts generally fall outside your estate if you survive seven years from the date of the gift. There are annual exemptions on top of that. The clock on the seven-year rule only starts when the gift is made, so starting earlier means more of it counts.

The second is beneficiary nominations. Your pension provider holds an expression of wish form telling them who should receive the pot. Many people filled this in once, years ago, and never looked again. It is worth checking it still reflects your life and the people in it.

The third is drawdown sequencing — the order in which you spend down different pots in retirement. The old logic of leaving the pension untouched because it sat outside the estate no longer holds in the same way after April 2027. The right order now depends on income tax, on your other assets, and on what you want to leave behind. None of these levers should be pulled on assumption. They should be modelled against your actual numbers, which is the work behind our advice for people approaching retirement.

What should I do before April 2027?

Read the statement properly. Find the current fund value, the provider, and the type of scheme. That number is the starting point for everything that follows, and most people have not looked at it closely since it arrived.

Then add the pension to the rest of your estate and see where the total sits against the nil-rate bands. If you are comfortably below the thresholds even with the pension included, the change may not affect you and you can note it and move on. If you are near or above the line, the 2026/27 year is when your options are widest.

Check your expression of wish form with your provider. Pull together a rough estate total. And if the numbers are close to the threshold, get the calculation checked before the tax year ends rather than after. Estate planning sits across pensions, wills and tax at the same time, which is why our wills and estate planning service works alongside the financial planning side rather than separately from it. You can also read the government's own summary of the measure on the GOV.UK pensions and inheritance tax page.

The pension change does not move your thresholds. It moves your pension inside them. For people whose estates were always going to be below the nil-rate bands, this may turn out to be a non-event. For people sitting near the line, a pot that used to pass cleanly now carries a 40% question. The 2026/27 tax year is the time to find out which group you are in — while the statement in the drawer is still the only thing that has changed.