Your pension could face a
40% Inheritance Tax bill.
Here's what you can do.
From April 2027, unused pension funds will be included in your estate for IHT purposes. For many families, this is the biggest change to retirement and estate planning in a generation. The window to act is open — but it won't stay open for long.
What's changing
Pensions and IHT — the rule change explained
Currently, defined contribution pension funds sit outside your estate for Inheritance Tax purposes. This has made pensions one of the most tax-efficient ways to pass wealth to the next generation.
From 6 April 2027, that changes. Unused pension funds will be brought into your estate and taxed at 40% on anything above the nil-rate band — currently £325,000, or up to £500,000 with the residence nil-rate band.
For someone with a £500,000 pension pot and other assets, the IHT exposure could run to six figures. The good news is that with the right advice, there are legitimate strategies to reduce that liability — but they take time to put in place.
Before April 2027
Pension funds sit outside your estate — no IHT on death
From April 2027
Unused pension funds included in estate — 40% IHT applies above nil-rate band
With planning
Strategies exist to reduce exposure — but they need time to implement properly
Time remaining until the April 2027 deadline
Some planning strategies require months to implement. Don't leave it until the last minute.
What you can do
Strategies to reduce your pension's IHT exposure
There is no single solution — the right approach depends on your circumstances, other assets, and family situation. These are the main options worth exploring with an adviser.
Review your drawdown strategy
Spending from your pension first (rather than other assets) reduces the pot exposed to IHT. A structured drawdown plan can make a significant difference.
Consider pension nominations carefully
Updating your expression of wishes and nomination of beneficiaries ensures your pension is distributed as efficiently as possible under the new rules.
Explore trust arrangements
Certain trust structures can help manage how pension death benefits are paid, potentially reducing the IHT exposure for your beneficiaries.
Use gifting allowances
Annual gifting exemptions and potentially exempt transfers (PETs) can reduce your overall estate value over time — but timing matters.
Life cover written in trust
A whole-of-life policy written in trust can provide a lump sum to cover the IHT liability, protecting your family from a forced sale of assets.
Every situation is different
Get personalised advice from an independent adviser
SBC Financial is an independent financial adviser based in Haddington, East Lothian. We give straightforward, personalised advice with no product bias and no pressure.
Book your free initial consultationWhy SBC Financial
Independent advice you can trust
Truly independent
We are not tied to any product provider. Our advice is based entirely on what is right for you.
Local and personal
Based in Haddington, East Lothian, we work with clients across the region on a face-to-face basis.
FCA authorised
SBC Financial is authorised and regulated by the Financial Conduct Authority (FCA ref: 997666).
Common questions
Pension IHT — your questions answered
Don't leave your estate planning until it's too late
Book a free initial consultation with SBC Financial. We'll review your pension, your estate, and the options available to you — with no obligation and no jargon.
SBC Financial is authorised and regulated by the Financial Conduct Authority (FCA ref: 997666). The value of investments can fall as well as rise. Tax treatment depends on individual circumstances and may be subject to change.