By James W. Melhuish DipPFS EFA
Director, Pocknells Wealth Management
Over the past few years, many clients have come to see their pension as more than a retirement fund. It has also been treated as a highly tax-efficient asset to leave to the next generation. From 6 April 2027, that assumption will need to be revisited.
The change is important, but it is not a reason for panic. It is a reason for accountants, financial planners, solicitors and clients to look at the same picture together, while there is still time to make considered decisions.
For accountants, this is particularly relevant because you may see the issue before anyone else. A client’s accounts, remuneration strategy, pension contributions, drawings and family wealth can reveal that a previously sensible plan may no longer work as intended.
What is actually changing?
For deaths on or after 6 April 2027, most unused pension funds and pension death benefits will be brought into the value of an individual’s estate for Inheritance Tax purposes. This is no longer simply a policy announcement. The core change has been legislated through Finance Act 2026.
Personal representatives, usually the executors or administrators of the estate, will be responsible for reporting and paying any Inheritance Tax due. Pension scheme administrators will have information-sharing duties and, in certain circumstances, a mechanism will allow tax attributable to pension benefits to be paid directly from the pension scheme.
Important exemptions remain. Benefits passing to a surviving spouse or civil partner, and to registered charities, will continue to benefit from the usual Inheritance Tax exemptions. Death-in-service benefits from registered pension schemes are also excluded from the new charge.
The operative date is determined by the date of death. If someone dies before 6 April 2027, the present rules apply even if the pension benefits are paid later.
What remains unfinished?
The tax change itself is confirmed. Some of the practical machinery is still being finalised.
HMRC’s technical notes describe how personal representatives, pension schemes and beneficiaries are expected to exchange information, value the pension element and arrange payment. HMRC has also said that updated guidance, templates and interactive tools will be available by April 2027. The notes are useful, but HMRC is clear that they are not final guidance.
That distinction matters. Clients should not make irreversible decisions based on speculation about administrative detail. Equally, waiting until a death occurs could leave executors trying to identify several pension arrangements, obtain valuations and meet tax deadlines at a difficult time.
Why could this catch clients out?
The standard Inheritance Tax rate remains 40% on the taxable part of an estate. The nil-rate band is £325,000 and the residence nil-rate band is £175,000, subject to the relevant conditions and tapering. These thresholds are due to remain fixed through 2030/31.
A pension that has historically sat outside the estate may therefore push a family above an allowance, increase an existing liability or affect entitlement to the residence nil-rate band. HMRC estimates that, in 2027/28, around 10,500 estates will have an Inheritance Tax liability that would not previously have arisen, while around 38,500 estates will pay more. Most estates will still have no Inheritance Tax to pay.
There may also be Income Tax when inherited pension benefits are taken, depending on factors including the member’s age at death, the type of benefit and how it is drawn. This creates a genuine need for joined-up advice. It is not enough to look only at the headline Inheritance Tax rate.
Does this mean clients should start emptying pensions?
Not automatically.
A pension remains a valuable retirement-planning tool. It can provide tax relief on contributions, tax-efficient growth and a disciplined source of future income. Drawing heavily from a pension simply to avoid a possible future tax charge could create an Income Tax bill now, reduce long-term security or move money into the estate without improving the overall position.
The right answer depends on the client’s expected spending, other assets, health, family circumstances, business interests, charitable intentions and appetite for gifting. For some, using more pension income may be sensible. For others, retaining funds for retirement will remain the priority. The objective should be a resilient lifetime plan, not a tax-driven reaction.
Questions worth raising with clients now
- How large could the client’s estate be once all pensions are included?
- Are pension records, beneficiary nominations and the Will up to date and consistent?
- Is the client retaining pension wealth for retirement, or mainly to pass it on?
- Could regular gifts from genuine surplus income form part of the plan, with proper records?
- Should remuneration, pension funding and retirement withdrawals be reviewed together?
- Is there enough accessible cash for executors and beneficiaries to deal with tax and administration?
- Are business assets, shares, property, trusts or life assurance also part of the estate-planning picture?
A practical joined-up review
In my view, the useful work now is straightforward: establish the facts, model the likely estate under the rules from April 2027, test alternative retirement and gifting strategies, and keep the plan under review as HMRC publishes its final guidance.
That is exactly where collaboration matters. At Pocknells Wealth Management, we work alongside the client’s accountant and, where appropriate, their solicitor. We support the existing professional relationship rather than replace it. The accountant’s understanding of income, company structure and historic transactions is often essential to producing sensible financial planning advice.
The pension changes do not mean every client needs a new product or an elaborate structure. They do mean that some clients need a better conversation about what their money is for, how much they can safely spend or give away, and how they want their family to be provided for.
A calm review now is likely to be far more valuable than a rushed response later.
Planning Points with Pocknells
If you have a client whose pension, estate, business interests or succession plans may be affected, we would be pleased to offer a complimentary Planning Points with Pocknells session. We can explore the main issues with you and your client, identify where regulated financial advice may help, and agree how we can work alongside you.
Important information
This article is for general information only and does not constitute financial, tax or legal advice. Tax treatment depends on individual circumstances and may change. Pension and estate-planning decisions should be made with appropriate professional advice. The value of investments can fall as well as rise, and clients may get back less than they invest.
Source notes
- HMRC policy paper, updated 3 March 2026: Confirms the £2.5 million combined allowance, transferable unused allowance, 50% relief above the limit, AIM treatment and ten-year interest-free instalments. The measure took effect on 6 April 2026.
- UK Business Relief guidance: Confirms qualifying business interests and shares, the two-year ownership condition, excluded investment activities and assets that may not qualify.
- UK Agricultural Relief guidance, updated 6 April 2026: Confirms qualifying agricultural property, ownership and occupation periods, farmhouse rules and how the combined allowance applies.
- HM Treasury and Defra explainer, updated 23 December 2025: Provides worked examples and the government’s estimate that up to 1,100 estates across the UK will pay more Inheritance Tax in 2026/27 under the combined reforms.
