Inheritance tax on pensions: what the April 2027 changes mean for your family

For many years, pensions have sat outside the reach of inheritance tax. That has made them one of the most efficient ways to pass wealth on to the next generation. From 6 April 2027, that is changing, and it is worth understanding now rather than later.

What is actually changing

Under the current rules, most unused pension funds and death benefits fall outside your estate when inheritance tax is calculated. From 6 April 2027, most unused pension funds and death benefits will instead be brought into your estate for inheritance tax purposes for the first time.

This was confirmed in the Finance Act 2026, which received Royal Assent in March 2026, so it is now law rather than a proposal. It applies to deaths on or after 6 April 2027.

In practical terms, a pension pot that would previously have passed to your children free of inheritance tax could now form part of the estate that is taxed at 40 per cent above your available allowances.

Are all pensions affected?

Not entirely. A few important points are worth knowing:

Death in service benefits paid from a registered pension scheme are expected to remain outside inheritance tax. Pensions passing to a surviving spouse or civil partner continue to benefit from the usual spousal exemption, so there is no immediate inheritance tax when wealth passes between partners. Gifts to a registered charity also keep their existing exemption.

So the change matters most where unused pension funds are due to pass to children, grandchildren or other beneficiaries who are not your spouse.

Why frozen allowances make this more significant

The standard inheritance tax nil rate band remains at £325,000, and the residence nil rate band at £175,000. Both are now frozen until April 2031.

Because these thresholds are not rising with inflation or house prices, more families are quietly being drawn into inheritance tax each year, an effect often called fiscal drag. Adding pension wealth into the estate from 2027 will pull more estates over the line.

What families in Chester and Wrexham can consider

There is no need to panic, and no single answer that suits everyone. The right approach depends entirely on your circumstances, the size of your estate and what you want your money to do. A few areas are worth reviewing with an adviser:

The order in which you draw your assets in retirement may matter more than before. For some people it could make sense to use pension funds during their lifetime rather than preserving them purely to pass on.

Making use of your annual gifting allowances, and understanding how larger gifts are treated, can reduce the value of your estate over time.

Reviewing your overall estate plan, including your will and any trusts, helps make sure everything works together rather than in isolation.

The key point is that planning ahead of the 2027 change gives you far more options than reacting after the rules take effect.

A common question: how do you avoid inheritance tax on pensions?

There is no way to simply opt out, but sensible planning can reduce the impact. That might involve using pension income earlier in retirement, gifting within the allowances available to you, structuring your wider estate efficiently, and making sure beneficiary nominations are up to date. What works for one family can be the wrong move for another, which is exactly why personal advice matters here.

We are here to help

These changes are a useful reminder that the rules evolve, and that a plan put in place a few years ago may need a fresh look. As an independent firm based in Rossett, we work with families across Chester, Wrexham and the surrounding areas to make sense of changes like this and build a plan around what matters to them.

If you would like to understand what the 2027 pension and inheritance tax changes might mean for you, we would be glad to talk it through.

📞 01244 571050 | www.cumminsifa.com

The Financial Conduct Authority does not regulate taxation advice or estate planning. The value of investments can go down as well as up and you may get back less than the amount invested. Tax treatment depends on individual circumstances and may change in the future.