The 2027 pension change that could upend your family’s financial plans

Within many families, pensions have been a highly effective way to pass on wealth free from IHT, under rules that have been in place for much of the past decade.

From 6 April 2027, that changes.

This shift has been widely reported. However, for many families, the real impact on existing plans hasn’t yet been fully worked through.

This is what is changing, how you could be exposed and why revisiting your pension planning ahead of 2027 is crucial.

What’s changing in simple terms

 From this date, most unused defined contribution pensions will be included when calculating the value of your estate for IHT purposes.

If your pension passes to the surviving spouse or civil partner, there is typically no IHT due at that point. The change applies on the death of the second person, when any remaining pension value will form part of the estate and will be subject to IHT at up to 40%.

This rule change fundamentally alters a pillar of many long term wealth planning strategies built over the last decade.

Key takeaway: in practical terms, pension wealth you may have expected to pass on tax‑efficiently could now be reduced before it reaches your family.

The burden that could be left behind on your family

IHT is often discussed in terms of percentages and thresholds. In practice, one of the most difficult consequences of this change is how burdensome and complex administering the changes can be and how much of that burden can fall on your family.

Over your working life, you may have accumulated multiple pension arrangements, often across several providers. From 2027, your personal representatives (the person or people legally entitled to administer your estate) may be responsible for identifying, valuing and coordinating all of these. This is where specialist pensions tax advice can play a critical role in reducing delays, costs and exposure to avoidable tax errors.

While your family is already dealing with the acute pain of bereavement, this can mean longer delays in your family receiving inheritance; higher professional costs as expert support is required and greater scope for error at an already emotional time.

Key takeaway: the cost of not planning isn’t only financial, there are extra burdens passed on to your loved ones at an already traumatic time. 

Why this changes the way you access your income

Since pension freedoms were introduced in 2015, pensions have occupied a particular place in wealth planning – normally meaning that you haven’t had to rely on them for income and have been able to pass them on tax-efficiently.

Under these new rules, this method no longer works in the same way.

Pensions remain valuable and flexible, but they no longer provide the same IHT protection you had in the past.

A Wealth Planner will be able to advise where you draw income and use your pension to help avoid IHT exposure.

Key takeaway: if your financial plans rely on pensions sitting outside IHT, they need reviewing to make sure you have enough money to live off now while also thinking about passing your wealth on.

The knock on effect you should be aware of

IHT applying to your pension value is only part of the picture.

As your pension pot is added into your estate, this can push your estate over key thresholds, triggering the loss of other reliefs, such as the residence nil rate band.

For you and your partner, this can reduce available allowances by up to £350,000.

The result is a double impact to your hard-earned wealth: IHT exposure increases even more and allowances you assumed were secure may fall away – even totally.

Key takeaway: this change doesn’t just add tax, it can remove allowances you might have assumed you’d keep, meaning now a significant portion of your entire estate is subject to IHT.

What does good wealth planning look like now?

As we’ve covered above, over time, you will have built up pension assets across different schemes and providers, often as a natural result of changing jobs and opportunities. Bringing those arrangements into a clearer, more coherent picture can make wealth planning decisions easier now and significantly reduce complexity, delay and uncertainty for your family and executors later.

Some examples of good planning before 2027 include: 

Simplifying your pensions:

A Wealth Planner will bring all your pensions under one roof to ease the burden of administration. 

Reviewing which assets you use first and whether that still makes sense after 2027:

For a long time, your plan will have been built around using non‑pension assets first and preserving your pension for as long as possible - that logic now needs revisiting.

Understanding what is genuinely surplus

Cash flow planning can help distinguish what you need and what you don’t to support your lifestyle now - and what may safely be passed on.

The real risk you face is knowing the headline but not the impact. While you may be aware of the incoming changes, many people have not yet considered how they interact with other allowances, how they alter the order in which wealth should be used, or what the consequences mean for their family in practice.

Key takeaway: your decisions don’t all need to be final today, but the thinking does.

For more on wider inheritance tax planning, read our guide to how to reduce inheritance tax.
  
Not sure if this affects you? A short conversation can help clarify your position.

For further information on the changes to IHT and pensions, please see the current guidance on the UK government website: Inheritance Tax — unused pension funds and death benefits - GOV.UK