Pension IHT from April 2027 — Transact's warning and what it means for homeowners with both property and pension wealth

What changes in April 2027

Under current rules, defined contribution pension funds that remain undrawn at death fall outside the deceased's estate for IHT purposes. They can be passed to nominated beneficiaries — typically children or grandchildren — free of IHT. This has made DC pensions one of the most tax-efficient assets to preserve for inheritance: pension wealth could be left untouched while other assets were drawn down first, knowing that whatever remained in the pension would pass IHT-free.

From April 2027, this changes. The Autumn 2024 Budget announced that undrawn DC pension funds will be brought within the scope of IHT, with the pension administrator required to account for and pay the IHT due on the pension element of the estate. The mechanics are complex — HMRC has been consulting on how the interaction between the pension fund, the estate, and any existing IHT reliefs will work — but the headline effect is clear: pension wealth that was previously outside the estate will now be inside it.

HMRC estimates that approximately 38,000–50,000 additional estates per year will come into IHT scope as a result of this change. Many of those estates belong to people who are homeowners — with property equity that was already potentially exposed to IHT, now compounded by pension wealth that was previously sheltered.

Transact's specific warning: the stacking effect

Transact's analysis highlights what it describes as a stacking effect: the combination of frozen nil-rate bands, rising property values, and the new pension IHT rules means that the total IHT exposure of a typical homeowner with a DC pension has increased substantially and in some cases dramatically since 2024.

Consider a homeowner aged 68 with a property worth £450,000 (owned outright), a DC pension pot of £250,000, savings of £50,000, and no current IHT planning in place. The combined estate is £750,000. Against a combined nil-rate band and RNRB of £500,000 (assuming a direct descendant inherits the property), the taxable estate is £250,000 — generating an IHT bill of £100,000. Before April 2027, the £250,000 pension would not have been in scope at all, meaning the estate pre-2027 would have been £500,000 — exactly at the threshold, with zero IHT. The 2027 change effectively creates a £100,000 IHT liability where none existed before.

For couples with larger estates, the compounding is more severe. Transact's warning is specifically about advisers ensuring clients understand this shift and take action before April 2027 while options remain.

How equity release on property could form part of the response

For homeowners in this position, coordinated planning across both the property and pension sides of the estate is essential. On the property side, a lifetime mortgage could reduce the net estate value of the property by the amount of the outstanding loan — directly reducing the property component of the IHT calculation. Cash released could be gifted, starting the seven-year potentially exempt transfer clock. If the gifted funds are invested or used by the next generation, the long-term value transferred outside the estate compounds over time.

On the pension side, financial advisers are reviewing the optimal drawdown strategy — considering whether drawing pension funds earlier (and spending or gifting the proceeds, or using them to live on while leaving other assets intact) reduces the pension balance that will be in-scope for IHT in 2027 and beyond. The interaction between pension drawdown, income tax on drawdown, and IHT savings is complex and individual-specific — which is why specialist advice covering both dimensions is essential.

Verity Home advisers are specialists in the property side of this equation. We work alongside financial advisers and solicitors to ensure that any equity release recommendation is coherent with the broader estate plan. An initial conversation with Verity Home is free and carries no obligation.

Acting before April 2027

The window to plan ahead of the 2027 change is narrowing. Any lifetime mortgage arranged now, and gifts made from the proceeds, will have a head start on the seven-year potentially exempt transfer clock before the new rules take effect. Waiting until after April 2027 does not foreclose options — but it reduces the runway available before the rules change, and means one more tax year of inaction during which the estate's exposure continues to accumulate.

Speak to a Verity Home specialist today to understand what your property could contribute to an IHT planning strategy ahead of April 2027.