Pensions join your estate for inheritance tax from April 2027

What changes on 6 April 2027

Until April 2027, pension funds — whether in a defined contribution scheme, a self-invested personal pension, or a workplace pension in drawdown — are outside a person’s estate for inheritance tax purposes. If someone dies with money still in their pension pot, that money passes to the nominated beneficiaries without being subject to inheritance tax, regardless of the size of the estate.

From 6 April 2027, that exemption ends. Unused pension funds will be added to the total estate value and taxed under the same rules as other assets. Where the combined estate — property, savings, investments, and now pension funds — exceeds the nil-rate threshold, the excess is taxed at 40%. For many people with significant pension pots who have also accumulated property wealth and other savings, this will push their estate over the threshold or significantly increase the taxable amount above it.

How this reverses previous planning logic

For decades, a common approach in retirement planning was to spend non-pension assets first — drawing down ISAs, savings accounts, and other investments — while leaving the pension pot untouched for as long as possible. The reasoning was straightforward: pension funds were outside the estate and therefore represented a highly tax-efficient way of passing wealth to the next generation. Spending other assets first preserved that advantage.

From April 2027, that logic no longer holds in the same way. Pension funds in the estate will face the same potential 40% charge as other assets above the threshold. The calculus of which assets to draw on first, and in what order, becomes considerably more complex. What was previously a clear advantage of leaving the pension untouched becomes a neutral factor — or, for some people, a reason to think differently about sequencing.

This is a significant enough change that many people with substantial pension pots will want to review both their nominated beneficiaries and their drawdown plans in light of it. The current rules apply until April 2027, which means there is a window — though not an unlimited one — to understand the implications before the change takes effect.

Where property fits in

For homeowners over 55, property is often the largest single asset in an estate — and it has always been inside the estate for inheritance tax purposes. What changes from April 2027 is that pension funds join it there. The combined picture of property value, pension funds, savings, and investments now all sits within the same framework, and understanding that combined picture matters more than it did when pension funds could be treated as a separate, exempt category.

This does not mean that releasing equity from a home and leaving a pension untouched is the right answer — that would depend entirely on individual circumstances, values, and what different family members need. What it does mean is that the question of how property wealth and pension wealth interact in estate planning deserves a more complete look than the previous rules required.

For homeowners thinking about how property equity fits into the broader picture, our guide to equity release and inheritance tax covers how property wealth is treated and what the options are. Our introduction to equity release explains the basic mechanics for those who have not looked at it before.