For years, pensions have been one of the most efficient ways to pass on wealth. Money left in a pension usually sat outside your estate, so it was free of inheritance tax. That is due to change on 6 April 2027.
What is changing
From that date, most unused pension funds and death benefits are due to be counted as part of your estate when you die. If your estate is worth more than your tax-free allowances, the excess can be taxed at 40%.
If you die after 75, your beneficiaries may also pay income tax on what they draw from an inherited pension. Together, that can take a large share of what you meant to pass on.
In shortPensions are still a good way to save for retirement. What changes is how well they work as a way to pass money on.
Who it affects most
- People with large pension pots they don’t expect to spend in full
- Couples where the pension is the main asset left after the first death
- Anyone who has been drawing from savings first to keep the pension intact for their family
What to check in your own plan
Start with the order you draw from your money. Many people spend ISAs and savings first and leave the pension untouched. That may no longer be the right order.
Then look at who you have nominated to receive your pension, and whether your will and your pension nominations still say the same thing. It’s also worth reviewing any gifts you planned to make, as giving earlier can sometimes make more sense than giving later.
See where you stand
Our inheritance tax estimator shows a rough bill today and from April 2027, so you can see how much the change affects you. If the gap is significant, it’s worth talking it through with an adviser.
Last reviewed 14th October 2026. This is for general information only and isn’t personal financial advice. Tax rules can change, and how they apply depends on your circumstances. The value of investments can go down as well as up, so you could get back less than you put in.
