Inheritance Tax changes from April 2027: What they mean for you

From April 2027, Inheritance Tax will apply to your pension for the first time - pensions will count as part of your estate and can be taxed at 40% on death. It's the biggest change to Inheritance Tax (IHT) in years, and it affects anyone hoping to pass on a pension pot.

Inheritance Tax is charged at 40% on the value of your estate above certain thresholds. The nil rate band is £325,000 - frozen since 2009 and now frozen until at least April 2031 - plus a residence nil rate band of up to £175,000 if you leave your home to a direct descendant. Married couples and civil partners can combine allowances, protecting up to £1 million before any tax is due. With pensions moving inside the estate, far more families will be pulled over the line.

The stakes are real: in our worked example, a pension left to higher-rate taxpayer children ends up worth just 36p in the pound once Inheritance Tax and Income Tax both bite. There are established ways to reduce the hit - gifting, trusts, and pairing an annuity with a whole of life policy - but each carries traps that catch families out.

Join Boring Money for free to read the full guide, drawn from our webinar with a financial adviser, covering exactly what's changing and the practical steps to prepare:

• The three gifting allowances - the £3,000 annual exemption, £250 small gifts, and regular gifts from surplus income with no seven-year wait

• How trusts and the seven-year rule work - and why putting your home in one can cost you the £175,000 residence band

• The full annuity + whole of life worked example on a £200,000 pension pot

• Answers to the questions people actually ask: spouses, unmarried partners, power of attorney and gifting, and gifting a home you still live in

• Business relief, equity release and managing withdrawals as further options

• The adviser's three starting points for getting your estate in order