At Wells Gibson, keeping you informed of changes that affect your financial plans is something we take seriously. One of the most significant changes in recent years, the inclusion of pensions within your estate for Inheritance Tax (IHT) purposes, becomes effective in April 2027.
Here is what you need to know
At the October 2024 Budget, the Chancellor announced that pensions would be brought within the scope of IHT. That decision became law when the Finance Act 2026 received Royal Assent on 18 March 2026. On 11 May 2026, HMRC published a detailed technical note confirming exactly how the rules will operate in practice.
For many years, pensions have sat outside your estate for IHT purposes, shaping how many people structured their finances, drew down their assets, and planned to pass wealth to their families. From 6 April 2027, that changes.
What is changing?
From 6 April 2027, most unused pension funds and pension death benefits will form part of your taxable estate for IHT purposes.
At the standard rate of 40%, this could represent a significant charge on funds that were previously expected to pass to loved ones free of tax.
The government has been clear about the reason for this change. Pensions had increasingly been used as a vehicle for transferring wealth rather than purely funding retirement. This legislation is designed to address that.
What is not changing?
Not all pension benefits are caught. The following remain outside the scope of IHT:
Transfers to a spouse or civil partner ➔ the spousal exemption continues to apply, so pension funds passing to a surviving spouse will not attract IHT in the normal course.
Death in service benefits ➔ lump sum payments linked to your employment at the time of death remain excluded.
Dependants’ scheme pensions ➔ ongoing pension income paid to a dependant after your death, such as a surviving spouse’s pension, continues to be excluded.
Joint life annuities ➔ where a dependants’ or nominees’ annuity was purchased alongside a member’s lifetime annuity, this remains excluded.
What does this mean in practice?
Beyond the tax charge itself, the practical implications are significant.
Executors carry new responsibility
In Scotland, your executor nominate (named in your Will) or executor dative (appointed by the court where there is no Will), will be responsible for identifying all pension schemes, requesting valuations, and ensuring any Inheritance Tax due is paid within six months of the date of death.
Having a clear, up-to-date Will and a well informed executor is more important than ever.
A note for Scottish clients
The rules apply in full across Scotland. The process uses Confirmation rather than Grant of Probate, and the executor terminology differs, but the obligations are identical to the rest of the UK.
Beneficiaries may not have immediate access to funds
Personal representatives can instruct a pension scheme to withhold up to 50% of a beneficiary’s entitlement while the tax liability is resolved. Families should be prepared for this.
There is no instalment option
IHT on pension assets must be paid in full within six months of the date of death, in cash. No relief, no deferral.
Pension nominations may need updating
The expression of wishes you completed, perhaps many years ago, may no longer reflect your current circumstances or intentions.
How Wells Gibson can support you
This change has been on the horizon since the October 2024 Budget. The legislation is now in place, the operational detail has been confirmed by HMRC, and April 2027 is approaching.
The key message is not to panic, but to plan early. For many of Wells Gibson’s existing clients, this will simply mean revisiting existing plans rather than making dramatic changes. Small, well considered adjustments made early can often have the greatest long-term impact.
At your Annual Wealth Plan Meeting, your adviser financial planner will:
✓ Review your IHT position with pensions now included in your estate.
✓ Check your pension nominations and expressions of wishes are current.
✓ Revisit any planning assumptions built around pensions sitting outside the estate.
✓ Make sure your Will and executor arrangements reflect the new responsibilities ahead
You may also find our Purposeful Wealth Podcast episode, “Passing Wealth with Purpose: Estate Planning for Families and Business Owners”, helpful, where we discuss wills, executors, inheritance tax and family legacy planning in more depth.
If you have any concerns about how these changes may affect your own financial plans, estate arrangements or family circumstances, please contact a member of our team.
With the changes due to take effect from April 2027, now is a sensible time to review your arrangements and ensure your plans remain aligned with your wishes and current legislation.
Risk warnings
This article is intended for general guidance only and should not be considered financial, tax or legal advice.
Inheritance Tax and pension legislation are complex and depend on individual circumstances.
Tax rules and legislation can change in future.
The value of investments and pension funds can fall as well as rise, and you may receive back less than originally invested.
Wills, pension nominations and expressions of wishes should be reviewed regularly to ensure they remain appropriate and reflect your intentions.
For the preparation or review of a Will, you should consult a qualified Scottish solicitor.
Wells Gibson Limited is authorised and regulated by the Financial Conduct Authority (Firm Reference Number 731027).
