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For most of the last decade, a pension was the most tax-efficient thing you could leave behind. From 6 April 2027 that stops being true. If you have a pension you don’t expect to spend, this change probably affects your family, and the time to look at it is before it takes effect, not after.
Finance Act 2026 received Royal Assent in March 2026. For deaths on or after 6 April 2027, most unused pension funds and pension death benefits are included in the value of your estate for inheritance tax.
That applies whether or not the scheme trustees have discretion over who receives the money. The old distinction, pensions sitting outside the estate because a trustee chose the beneficiary, no longer does the work it used to.
Your personal representatives, usually your executors, often your children, become responsible for reporting and paying the inheritance tax due on your pension. They can ask the scheme to withhold up to 50% of the benefits for up to 15 months so the bill can be settled.
In practice that means the people administering your estate must identify pensions they may not know exist, get valuations from providers, and co-ordinate payment, all inside the probate timetable. It’s an administrative burden that lands on your family at the worst possible moment.
Consider a single person, no surviving spouse, who dies after 6 April 2027 leaving:
| Home | £400,000 |
| ISAs, savings and other assets | £200,000 |
| Unused pension | £300,000 |
| Total | £900,000 |
Under the old rules the pension sits outside the estate. The taxable estate is £600,000, allowances of £500,000 apply, and the inheritance tax bill is £40,000.
Under the new rules the pension is included. The taxable estate is £900,000, the same £500,000 of allowances apply, and the bill is £160,000.
The pension has added £120,000 to the tax bill.
And there’s a second layer. Where death occurs after age 75, whoever inherits the remaining pension pays income tax at their own marginal rate when they draw it. So if the beneficiary is a higher-rate taxpayer, the £300,000 pension is reduced by £120,000 of inheritance tax, and the £180,000 left is taxed again on withdrawal. Roughly £192,000 of the original £300,000 goes in tax.
This is a simplified illustration based on our understanding of the rules as at August 2026. It assumes no surviving spouse, no lifetime gifting, that the residence nil-rate band applies in full, death after age 75, and a higher-rate taxpaying beneficiary. Your position will differ. Tax treatment depends on individual circumstances and may change.
You should probably look at this if:
You probably don’t need to, at least yet, if everything passes to a surviving spouse or civil partner and the combined estate is comfortably within the allowances.
There is no single fix, and anyone offering one should be treated with suspicion. What usually helps is some combination of the following, worked through against your actual numbers.
Most of what reduces an inheritance tax bill involves giving up control of money, or giving it away entirely. Gifts generally take seven years to fall fully outside your estate. Trusts have their own tax treatment and running costs. Any investment-based solution carries investment risk, and the value can fall as well as rise.
And this is a moving target. Thresholds have been frozen and extended repeatedly, and the pension rules themselves were announced in 2024 and only became law in 2026. A plan that works today should be reviewed regularly.
The Financial Conduct Authority does not regulate tax advice, trusts, or will writing. Where you need a solicitor or an accountant, we’ll say so and we can work alongside them.
No. The change applies to unused private and workplace pension funds and pension death benefits.
The current rules apply, even if the benefits are paid to your beneficiaries after that date.
No. The spouse and civil partner exemption is unchanged. The question is what happens on the second death.
Sometimes, but not automatically. Withdrawing a large sum can push you into a higher income tax band, and a gift takes seven years to fall fully outside your estate. It needs working through with your actual numbers.
No. April 2027 is the date the rules change, not a deadline for planning. But several of the useful options, gifting in particular, work better the earlier you start, because of the seven-year rule.
Often, yes, for wills and trusts. We work alongside your existing solicitor, or we can suggest one.
The first conversation is free and there’s no obligation. If it turns out you don’t need to do anything, we’ll tell you, that happens more often than you might expect.
Lee Barton DipFA CeFA CeMAP, Director & Financial Planner, Bosworth Wealth Management
Bosworth Wealth Management is authorised and regulated by the Financial Conduct Authority. FCA number: 805232.
The value of investments can fall as well as rise and you may get back less than you invested. Tax treatment depends on your individual circumstances and may be subject to change in future. The Financial Conduct Authority does not regulate tax advice, trusts or will writing.
Last reviewed: August 2026.
We have a page setting out how we approach inheritance tax planning, including who it suits, how it works and what it costs.
The first conversation is free and there is no obligation. Book with whichever adviser is closest to you, or whoever suits. We work with clients across the UK.
Lee Barton (Leicester) | Ian Laker (Tamworth) | Chris Wood (Coventry)
Bosworth Wealth Management is authorised and regulated by the Financial Conduct Authority. FCA firm reference number 805232.
Our advisers are based in Leicester, Tamworth, Coventry and King’s Lynn, and we work with clients across the UK.
The value of investments can fall as well as rise and you may get back less than you invested. Tax treatment depends on your individual circumstances and may be subject to change in future.