Inheritance Tax is changing: could your family be affected?

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You can also learn more on 8 September at our monthly networking event where Rebecca Aldridge, Chartered Financial Planner and founder of Balance: Wealth Planning, will be discussing Inheritance Tax. Book by clicking here.

Why more families may need to review their estate planning before unused pensions enter the IHT calculation.

Rising property values, frozen tax-free allowances and changes to pensions mean that more families now need to understand Inheritance Tax (IHT).

From 6 April 2027, most unused pension funds and pension death benefits will be included when an estate is assessed for IHT.

This does not mean every pension will be taxed, but many estate plans should be reviewed.

How many more estates could pay IHT?
The latest HMRC estimate looks specifically at estates with inheritable pension wealth in 2027/28. It suggests that:
– Around 10,500 estates may have an IHT liability when they would not previously have had one
– Around 38,500 estates may pay more IHT than under the previous rules

For estates already paying IHT and affected by the pension change, the average liability could increase by around £34,000

These are estimates and most estates are still expected to pay no IHT. However, the figures show why wealth held in a pension can no longer be ignored.

How is Inheritance Tax calculated?
IHT is normally based on the value of everything a person owns when they die, after deducting allowable debts, exemptions and reliefs.

The main nil-rate band is currently £325,000. There may also be a residence nil-rate band of up to £175,000 where a qualifying home passes to direct descendants. The residence allowance is tapered where the estate exceeds £2 million.

Transfers to a spouse or civil partner are generally exempt. Any unused nil-rate bands can also normally be transferred to the surviving spouse or civil partner. This means that, in the right circumstances, a married couple or civil partners may ultimately pass on up to £1 million without IHT.

IHT is usually charged at 40% on the taxable value above the available allowances.
A simple example


Estate calculation > Amount
Home, savings and investments – £650,000
Unused pension included from 6 April 2027 – £250,000
Total estate before exemptions and reliefs – £900,000
Less nil-rate band – (£325,000)
Less residence nil-rate band, if fully available – (£175,000)
Potential taxable estate – £400,000
Illustrative IHT at 40% – £160,000

This is deliberately simplified. The result may be very different where assets pass to a spouse or civil partner, allowances have been transferred, gifts have been made, the £2 million taper applies, or business and agricultural reliefs are available.

What changes for pensions from April 2027?
For deaths on or after 6 April 2027, most unused pension funds and pension death benefits will form part of the estate for IHT purposes. Personal representatives will be responsible for reporting the pension value and paying any IHT due.

There are important exceptions. Registered pension scheme death-in-service benefits will remain outside IHT, and the usual exemption for benefits passing to a spouse, civil partner or charity will continue.

The interaction between IHT and the Income Tax rules applying to inherited pensions can be complicated. The answer will depend on the pension, age at death, beneficiaries and other estate assets.

What planning options are available?
Good planning is not about giving everything away. It is about understanding the likely exposure and making informed choices while there is time.

Options to discuss with the appropriate adviser may include:
Reviewing your will. An outdated will can waste allowances or leave assets in a way that no longer reflects your wishes.

Checking pension nominations. Make sure expression-of-wish forms are current and fit with the wider estate plan.

Making lifetime gifts. Gifts can fall outside the estate if the donor survives for seven years, although the detailed rules and records matter.

Using annual exemptions. The standard annual gift exemption is £3,000, with other exemptions potentially available.

Making regular gifts from surplus income. These can be immediately exempt where the conditions are met, but affordability and evidence are essential.

Considering charitable gifts. Leaving at least 10% of the qualifying net estate to charity can reduce the IHT rate on the remaining taxable estate to 36%.

Reviewing how retirement is funded. Once pensions are within the IHT calculation, the traditional approach of spending non-pension assets first may not always remain appropriate.

Considering life assurance written in trust. This may provide funds to meet an IHT bill, subject to appropriate advice.

Reviewing business or agricultural assets. Reliefs may be available, but the rules are changing and should not be assumed.
Tax is only one consideration. You must retain enough for your own needs, consider care costs and protect vulnerable beneficiaries.

Why come along to our networking event?
IHT is full of rules that sound simple until they are applied to a real family. Pensions, property, businesses, lifetime gifts and wills all interact, and a decision made in one area can have an unexpected effect elsewhere.

Our September networking event gives you an opportunity to hear from an expert who works with these issues, understand the forthcoming pension change in plain English and ask the questions that general articles cannot answer.

Event details:
Beeston Fields Golf Club
Tuesday 8 September
11am-1:30pm

It is also a chance to meet other local business owners and professionals in a relaxed setting. You do not need to know the technical terms: the aim is to help you recognise the questions to ask and decide whether a personal review would be worthwhile.

Our view
Most estates will still not pay IHT, but more families are likely to be affected and the inclusion of pensions from 6 April 2027 is a significant change.

Planning is usually more effective when it begins early, before a rushed decision is needed. Come along to our networking event to hear from the expert, meet the Coalesco team and start the conversation. If you would like us to review the tax position alongside your accountant, solicitor and financial adviser, please speak to us or get in touch by visiting our website – https://coalesco.co.uk/, call us on 0115 238 3228 or email info@coalesco.co.uk or pop into our offices in Wollaton, Nottingham.

This article is a general overview based on the rules and published policy in August 2026. It is not financial or legal advice. Individual circumstances should be reviewed before action is taken.