From 6 April 2027, most unused pension funds and pension death benefits are expected to be included in a person’s estate for inheritance tax.
This changes a long-standing planning assumption. For years, many people have been told to spend cash, ISAs and other investments first, and leave pensions until last. That may still be right for some people, but it should no longer be assumed. The issue is not just tax. It is also about making life easier for your executors and family.
Why this matters
When someone dies, their executors already have a difficult job. They need to value the estate, deal with HMRC, apply for probate, pay bills and speak to beneficiaries. From April 2027, pensions may add another layer of work. Your executors may need to find your pension schemes, request values, check who has been nominated, report the pension value and arrange payment of any inheritance tax due. That is manageable if your records are clear. It is much harder if they have to guess.
The cashflow problem
Inheritance tax is usually due within six months of death. That can be awkward if most of the estate is tied up in property or pensions. In simple terms, will your family have enough accessible money to pay the tax bill? If not, your executors may be forced into difficult decisions.
The executor checklist
Here is what I would want my own family to have.
1. List your pensions
Keep a simple record of:
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provider;
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policy number;
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approximate value;
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adviser contact;
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whether the pension is untouched, in drawdown, or an annuity.
2. Update your expression of wish forms
Your pension is usually not controlled by your will in the same way as your house or bank account. The pension provider normally considers your expression of wish form when deciding who receives the pension. Check it is still right, especially after marriage, divorce, bereavement, children, grandchildren or changes to your will.
3. Check your will and pension nominations work together
Your will might leave everything equally to your children, but your pension nomination might name only one of them. That may be deliberate, or it may be an old form. Clarity matters, especially with second marriages, blended families, unmarried partners and stepchildren.
4. Think about where the tax would be paid from
Ask one question: If inheritance tax is due, where does the money come from? It may be cash, ISAs, investments, pension funds, life cover, or earlier gifts. The key is to have a plan.
5. Do not raid your pension without advice
Taking money out of a pension can create income tax, push you into a higher tax band and reduce your future security. It may also move money from a tax-efficient pension into your taxable estate. The better question is: What is the best order to use my assets?
6. Make gifts only if affordable
Gifting can help with inheritance tax planning, but only if you can comfortably afford it. Do not give away money you may need for your lifestyle, care costs or long-term security.
7. Leave clear records
Your executors should know where to find:
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your will;
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pension details;
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bank and investment details;
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life policies;
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adviser, solicitor and accountant details;
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records of gifts;
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trust documents, if relevant.
The bottom line
From April 2027, pensions may become an inheritance tax issue as well as a retirement planning issue. The old rule of “leave the pension until last” may still be right, but it needs checking. The practical steps are simple:
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list your pensions;
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update your nominations;
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check your will;
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review estate liquidity;
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think carefully before taking pension withdrawals;
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make gifts only if affordable;
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leave clear records.
This is about leaving order, not confusion.
If you need advice, we’re here to help. Schedule a free, no-obligation chat here. A guide on selecting a financial advisor is also available here.
This article is for general information only and does not constitute personal financial, tax or legal advice. Tax rules can change and their impact depends on individual circumstances. The Financial Conduct Authority does not regulate tax planning, trust advice or school fees planning.
