How will the 2027 inheritance tax changes affect your pension?
Written by Boring Money
22 April, 2026
If you have a defined contribution pension and you've been letting it grow untouched, perhaps planning to pass it on to your children or grandchildren, the rules are about to change in a way that could significantly increase your family's tax bill.
From April 2027, unused pension pots will fall within the scope of inheritance tax for the first time in over a decade. For anyone with a SIPP, a personal pension, or a workplace defined contribution scheme, this changes the planning calculus considerably. And with just twelve months to act, the window to adjust your strategy is narrowing.
This guide explains what's changing, what it means in practice, and what steps are worth taking now.
What's changing with pensions and inheritance tax in April 2027?
Until now, unused defined contribution pension pots have sat outside the scope of inheritance tax. That changed in 2014 when the rules were overhauled to allow people to pass on their unspent pension pot to anyone they chose, children, grandchildren, even someone outside the family, free from IHT. Many retirees responded by drawing from ISAs and other savings first, leaving their pension untouched for as long as possible and letting it function as a tax-efficient family trust.
From April 2027, that changes. Unused pension assets will fall back into the scope of inheritance tax. The full details are still being finalised, but the direction of travel is clear, and the implications are significant.
In the worst-case scenario, families could face a double layer of tax: inheritance tax at 40% on death, plus income tax on withdrawals at the beneficiary's marginal rate, potentially up to 45%. For higher-rate taxpaying beneficiaries inheriting from someone who dies after age 75, the combined effective tax rate on that pension could exceed 70%.
This doesn't mean pensions are no longer worth having. It means the strategy around how and when to use them needs to change, and the sooner that review happens, the more options remain available.
The full guide covers:
Whether you should start drawing down your pension before the April 2027 deadline, and how to do it without triggering a larger tax bill
How the change affects the order in which you should use your assets in retirement
What the shift means for ISAs, and why ISA allowances just became more important
Gifting strategies that could reduce your estate's IHT exposure, including potentially exempt transfers and the normal expenditure out of income allowance
Whether annuities or whole-of-life insurance could play a role in your revised plan
Expert views from Evelyn Partners, Fidelity, and Lubbock Fine Wealth Management on what to do now
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