Pensions and inheritance tax from April 2027
From 6 April 2027 most pensions left on death count towards the estate for inheritance tax. What changes, what stays the same, and how it touches decisions about your mortgage.
From 6 April 2027 most pensions left on death count towards the estate for inheritance tax. What changes, what stays the same, and how it touches decisions about your mortgage.
From 6 April 2027, most unused pension funds and pension death benefits will count as part of a person's estate for inheritance tax. Until then, most defined contribution pensions have sat outside the estate.
For a household with a home and a pension, that can mean an estate that was below the inheritance tax thresholds before is above them after the change.
A pension left to a spouse or civil partner is covered by the spouse exemption, as other assets are.
The government has said death-in-service benefits paid from a registered pension scheme are excluded.
Where the pension holder dies at 75 or over, the person who inherits the pension still pays income tax on what they draw from it.
The nil-rate band of £325,000 and the residence nil-rate band of £175,000 still apply, and a surviving spouse or civil partner can use any unused share.
The residence nil-rate band is reduced for estates worth more than £2 million. From April 2027 pensions count towards that figure.
Tax rules change. Check the current position before you act on anything here.
Some decisions about a mortgage in later life were made on the basis that a pension passed outside the estate. Some people kept their mortgage running into retirement so their pension could stay invested. Others planned to spend savings first and leave the pension untouched for their children.
Check whether those plans still suit you after the change.
Your pension scheme will ask who you would like to receive your pension if you die. This is usually called an expression of wishes or a nomination. Check yours is up to date, particularly after a marriage, a separation or the birth of a child.
Who receives your pension is usually decided by the nomination, so changing your will does not change it.
From April 2027, they may, if your estate including the pension is above the thresholds after any exemptions. If you die at 75 or over, they may also pay income tax on what they draw.
The government has said death-in-service benefits from a registered pension scheme are excluded.
That depends on your income, tax position and family. Drawing money out can create an income tax bill and leaves the money in your estate in another form. Take advice first.
If you have a mortgage, your broker can give you the figures for clearing or reducing it, and the options for borrowing in later life.
How the change affects your estate, and what to do about your pensions, are questions for a regulated financial planner. Ask your broker to introduce you to one.
This article explains how things work. It does not take your circumstances into account. Your mortgage broker can introduce you to a regulated financial planner at Equity & General where the question needs one.
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