Inheritance Tax changes planned for April 2027

Posted onJune 9, 2025

Historically, maximising contributions to a pension has been an effective way to minimise Inheritance Tax liability for future beneficiaries. However, from April 2027, pensions are expected to be included in your taxable estate for the first time.

For as long as Inheritance Tax has existed, defined contribution pensions have been a valuable tax planning tool. This is because all money held in a pension would pass tax-free to beneficiaries, who would only pay income tax at their marginal rate when withdrawing from the pension pot.

However, from April 2027, most defined contribution pensions will be included in the estate for Inheritance Tax purposes, potentially incurring a 40% charge on the portion of the estate exceeding the nil-rate band of £325,000.

Beneficiaries are also expected to remain liable for income tax upon withdrawal, meaning higher-rate taxpayers could face a total tax burden of up to 64% on inherited pension pots.

While this change is expected to apply only to estates where the deceased was over 75 years old, increasing life expectancy means this will affect more people, and could make pensions a far less attractive option from an Inheritance Tax perspective.

It’s important to note that these changes are currently provisional and subject to revision before April 2027. If you would like advice relating to planning your estate, please contact our experienced Wills and Probate Solicitors, who will be happy to help.

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