Are You Writing HMRC into Your Will?
New Pension Inheritance Tax Rules in 2027: What You Need to Know
Why This Matters Now
For many British expats and internationally mobile UK nationals, their accumulated workplace and private pension assets potentially represent a significant component of their overall wealth. Until now, pension assets have remained outside the scope of UK Inheritance Tax (IHT), but this is set to change in 2027 - underscoring the critical importance of proactive estate and drawdown planning.
What’s Changing in 2027?
As confirmed in the UK Autumn Budget 2024, from 6 April 2027, your pension assets will be regarded as part of your estate for the purposes of IHT and will therefore be subject to the same 40% tax burden as other assets in your estate.
If the value of your estate, including your pension, exceeds the IHT ‘Nil Rate Band’ threshold (which is currently £325,000 per individual with a potential 100% spousal exemption), your beneficiaries may face a 40% tax charge on any portion of the pension that has not yet been drawn. This could apply whether the funds are taken as lump sums or remain invested within an inherited pension wrapper.
Pensions have previously been considered a valuable tool for passing on wealth outside the scope of IHT, but this change to the tax regime marks a pivotal shift in how wealth is passed on to the next generation and could significantly affect the value of the legacy you leave behind.
Why Estate Planning Has Never Been More Important
Estate planning has always played a fundamental role in securing your financial legacy and enabling you to pass your assets to your loved ones in the most tax-efficient manner possible. However, with new IHT rules set to affect both pension treatment and residency status from April 2027, the need for a detailed estate and cashflow plan has never been greater.
What may once have felt like a distant consideration must now be brought into sharp focus. Taking a proactive approach to planning could help reduce the risk of unnecessary taxation on the wealth you intend to pass on.
For British expats, the layers of multi-jurisdictional tax exposure have the potential to make the estate planning process significantly more complex.
How Strategic Planning Can Help
This is where an experienced, dual-qualified financial planner becomes essential.
At Forth Capital, our team can support you to develop a tailored strategy that considers your location, your family’s needs and your long-term financial goals.
- Drawdown Strategy: Accessing pension funds in a controlled, tax-aware manner may reduce the size of the taxable estate. We can help you explore drawdown options that align with your broader financial objectives.
- Lifetime Gifting and Transfers: We can help you to decide whether structured gifting strategies could allow you to transfer wealth during your lifetime, in order to mitigate your beneficiaries' IHT liability.
- Cross-Border Tax Alignment: Financial planning advice from a dual-qualified international adviser is especially important if you hold assets in more than one country. We can help you ensure that your estate planning arrangements are structured to help you achieve your long-term goals.
We Understand the Challenges You Face
Whether you are based in Switzerland, the United States, Australasia, the Gulf region, or are preparing to return to the UK, the financial landscape can feel complex and uncertain. In an increasingly dynamic global tax environment, staying abreast of legislative change is essential – not only to protect your wealth, but also to ensure that it is passed on to your loved ones in the most efficient and structured way possible. You may be asking;
- Will my pension still be protected from inheritance tax?
- What happens to my estate if I pass away while living abroad?
- Are my beneficiaries prepared to navigate UK tax laws?
- How do I balance drawing income with preserving my legacy?
These are the kinds of questions we help our clients answer every day. With deep expertise in UK and international estate planning, our advisers work alongside you to reduce complexity, protect your assets, and develop a flexible plan that supports your goals across borders.
Making the Complex Simple for British Expats Worldwide
With dual qualifications and licences, we help British expats cut through the complexity of international financial planning. Whether you’re managing pensions across borders, navigating currency risk, or planning for retirement overseas, we provide clear, transparent, personalised advice to ensure your wealth is structured tax-efficiently and ensure that costly mistakes are avoided.
We work closely with clients facing global financial challenges, offering joined-up solutions that align your pensions, investments, and long-term goals. The aim is simple: effective, integrated planning that works wherever life takes you.
If you’d like to schedule a consultation to discuss your financial planning, wealth strategy, or pension arrangements get in touch today.
Tom Williams DipPFS EFPA
International Financial Planner
As a dual-qualified and dual-licenced International Financial Planner, I offer tailored financial planning services to international private clients. I help them understand their options, optimise their pensions and investments, and create a robust financial plan for their future lives. If you want to discuss your financial planning needs, please contact me here.
Frequently Asked Questions
From 6 April 2027, unused pension assets, including defined contribution pensions such as drawdown pots and certain lump-sum death benefits, are expected to fall within the scope of UK Inheritance Tax (IHT). The treatment of defined benefit pensions may vary depending on scheme rules and the structure of any death benefits paid. Further guidance is expected from HMRC.
The Nil Rate Band (NRB) is the threshold up to which an estate incurs no Inheritance Tax. As of the 2024/25 tax year, the NRB is set at £325,000 per individual. Any value below this amount is exempt from IHT. If your estate's value exceeds the NRB, the value of your estate in excess of the NRB threshold is liable for IHT.
Any unused NRB can be transferred to the surviving spouse, effectively doubling the NRB for a married couple or civil partners to £650,000.
In addition to the standard Nil Rate Band (NRB), the Residence Nil Rate Band (RNRB) offers an extra allowance when passing on the family home to direct descendants, such as children or grandchildren. As of the 2024/25 tax year, the RNRB is worth up to £175,000 per individual, which means a married couple, or civil partners could potentially pass on an additional £350,000 free from IHT.
However, this additional relief comes with specific eligibility criteria:
- It only applies to one residential property, nominated by the estate.
- The property must have been the deceased’s main residence at some point.
- It must be "closely inherited" - that is, passed to direct lineal descendants.
Tapering of the RNRB
If the net value of an estate exceeds £2 million, the RNRB is gradually reduced, or ‘tapered’. Specifically, the allowance is reduced by £1 for every £2 over the £2 million threshold. This means that for estates worth £2.35 million or more, the RNRB is completely lost.
The standard rate for Inheritance Tax (IHT) is 40%*. This is charged on the value of your estate that exceeds the 'Nil Rate Band' threshold. IHT liability is calculated at death and must typically be paid before the estate is distributed to beneficiaries.
Any pension funds that remain unused and are above your available nil-rate band (currently £325,000 with a potential 100% spouse exemption, may therefore be subject to a 40% IHT charge. If death occurs after age 75, beneficiaries may also be liable for income tax on any withdraw(dependent on the beneficiaries’ personal circumstances and income). This combination of IHT and income tax [for an additional rate UK taxpayer] could significantly reduce the total value passed on to a beneficiary, by as much as 67%.
* The standard rate can be reduced to 36% if at least 10% of the value of the estate is left to charity.
Yes. Transfers between spouses or civil partners are typically exempt from IHT. However, if the pension is later passed to other beneficiaries, such as children, the new IHT rules may then apply unless further planning has been implemented.
This depends on your personal situation and objectives, but several planning strategies may be appropriate:
- Planned drawdown, allowing you to use or gift portions of your pension during your lifetime.
- Trust or gifting strategies, to reduce the taxable value of your estate.
- Pension structure review, for example transferring your pension into more flexible or tax-efficient wrappers.
Yes. From 6th April 2025, the UK IHT regime changed from a domicile-based system to a residence-based system1. Whilst this change presents a significant opportunity for individuals who maintain UK non-resident status for at least 10 consecutive years to mitigate their IHT exposure (as after this period establishing Non-Long Term Resident Status means that individuals will no longer be subject to UK IHT on their non-UK assets) their UK situs assets, such as UK pensions, will remain in scope for IHT.
1 HM Treasury Policy Paper - New residence-based regime for inheritance tax
- This communication is for information purposes only and does not constitute financial, legal, or tax advice.
- All content is based on current UK legislation and is subject to change. All planning arrangements should be regularly reviewed in consideration of legislative updates.
- Pension regulation and tax treatment vary between jurisdictions. Any reference to UK or international pension rules is portrayed in general terms and is not intended to reflect individual circumstances. Any examples provided are hypothetical and for illustrative purpose only. Outcomes will differ based on individual circumstances and local law and regulation.
- Pension transfers carry specific risks and may not be appropriate for everyone. The suitability of any transfers or investments should be assessed on an individual basis.
- Past performance is not a reliable indicator of future results. The value of investments can fall and rise, and you may not get back the amount originally invested.
Last updated 24 July 2025
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