Pensions + Inheritance Tax: What Changes on 6 April 2027

You have a workplace pension. You have paid into it for fifteen or twenty years, possibly without ever logging in to look at it. You have always assumed two things: it will fund your retirement, and anything you do not use will pass cleanly to your family. Both have felt true.

From 6 April 2027, the second half of that assumption changes in a way most people have not been told about.

Most unused defined contribution pension funds and most lump sum death benefits will become part of your estate for Inheritance Tax purposes. A pot you spent your working life building, that was deliberately structured to sit outside your taxable estate, will no longer sit outside it.

This is the biggest estate-planning reset in a generation. And it affects more UK households than the headlines suggest.

What Changes on 6 April 2027

Until 5 April 2027, unused defined contribution pension pots pass to your nominated beneficiaries free of Inheritance Tax. The pension sits outside your estate by design. It was a deliberate feature of how UK pensions are structured, not an accident.

From 6 April 2027, the rules change. Two things move inside the IHT net:

1. Most unused DC pension funds held at the date of death.

2. Most lump sum death benefits paid out by a DC scheme.

Defined benefit pensions, the final salary schemes that pay a set income for life, are largely unaffected. The change targets the workplace pensions most working-age people actually have.

Once the pension is inside the estate, it counts toward your nil-rate band the same way your property and savings already do. If your total estate exceeds the available allowances, the excess is taxed at 40%.

The Numbers That Decide Whether This Affects You

Three figures decide whether the April 2027 change matters to you or not.

Above £2 million of estate value, the nil-rate band starts to taper. For every £2 of estate value above £2 million, the nil-rate band reduces by £1. The residence nil-rate band tapers the same way. At £2.325 million of estate, the £325,000 nil-rate band is gone entirely. At £2.35 million, the residence nil-rate band is gone too.

For most households this taper is irrelevant. For households with large DC pensions built up over long, high-earning careers, it is the trap that changes everything. The next piece in this series covers the taper in detail.

Who This Actually Affects

The change hits harder than the £1 million headline figure suggests, because most Anxious Accumulator households hold three things together: a property, a workplace pension, and a stocks and shares ISA. None of those alone looks like an IHT problem. Stacked, they can be.

A couple who are not caught

A married couple in their mid-forties. Combined property worth £650,000. A workplace DC pension of £240,000 between them. ISAs and savings of £80,000. Total estate at the second death: £970,000.

Under the current rules, the £240,000 pension sits outside the IHT calculation. The estate is £730,000, comfortably inside the £1 million combined allowance. There is no IHT to pay.

Under the new rules, the pension moves inside the estate. £970,000 is still inside the £1 million combined allowance. There is still no IHT. This couple is fine.

A couple who are caught

The same couple, fifteen years later. Property now worth £850,000 after years of appreciation. Pension grown to £520,000 between them on contributions and investment growth. ISAs and savings at £140,000. Total estate at the second death: £1,510,000.

Under the current rules, the £520,000 pension sits outside the estate. Taxable estate is £990,000, just under £1 million. Still no IHT.

Under the new rules, the pension is inside the estate. The estate is £1,510,000. The excess over £1 million is £510,000. At 40%, that is £204,000 of Inheritance Tax that would not have applied before April 2027.

This is not a wealthy household by UK standards. Two professionals, two children, mortgage nearly paid off, a workplace pension built quietly over twenty-five years. They are exactly the people who did not think Inheritance Tax applied to them.

Why the 2027 Date Matters

The 2027 start date is fixed in statute. It is not a consultation, not a proposal, not something the next government can quietly row back on without primary legislation. The change has been announced, drafted, and scheduled.

For deaths before 6 April 2027, the current rules apply. The pension sits outside the estate. After that date, it sits inside.

That creates a real choice for some households, because the order of events matters. A death before April 2027 with an unused DC pension triggers the old, more generous treatment. A death after April 2027 with the same pension triggers the new rules. For households sitting near the IHT threshold, this is not a hypothetical difference. It is a tax bill.

What About Drawdown

If you have already moved into drawdown, the situation is different. Money you have drawn out of the pension and moved into a bank account or ISA is yours, sits in your estate under the existing rules, and continues to do so.

The pension pot itself, the bit still inside the wrapper, is what moves into the estate from April 2027. If you have been drawing down at a sensible rate, the remaining pot may already be smaller and the exposure smaller too. If you have not started drawdown and the pot has been growing for twenty years, the exposure may be larger than you think.

The Taper Trap, Briefly

If your pension alone is close to £2 million, you face a separate problem. As the value of your pension pushes your total estate above £2 million, the nil-rate band starts to shrink.

A pension of £2.1 million in a single-person estate of £2.5 million loses £250,000 of nil-rate band. The tax bill that creates runs into six figures and arrives automatically. There is no appeal, no discretion, no negotiation.

This is the territory of high earners with long pension-contribution histories. Most readers of this page will not be there. But if your pension statement has ever given you a number north of £1.5 million, the taper is something to look at properly before April 2027.

What To Do This Month

The action this month is not to make a decision about your pension. It is to find out where you stand. Three steps. None of them take more than an hour.

The honest position for most people after running these three steps is that they are not yet caught by the change. The workplace pension has not grown enough, the property has not appreciated enough, the household is not wealthy enough. The change is a future problem, not a present one.

For some households, the answer is different. For those households, the questions that follow are whether to draw down the pension before April 2027, how to handle the expression of wishes form, and what reordering retirement drawdown looks like under the new rules. Each of those is a separate decision with its own trade-offs.

The point of doing the three steps this month is that you do not have to make any of those decisions in the dark.