How the 2027 Pension Shake-up Could Add 40% to Your IHT Bill
From April 2027 pension pots join the IHT net. Here's the detail, who is hit hardest, and five planning moves to consider today.
1. Why pensions were historically IHT-free
Pensions sat outside the estate because HMRC wanted to encourage retirement saving. That advantage disappears for deaths after 6 April 2027.
2. What exactly is being taxed?
- Uncrystallised DC funds (SIPP, workplace schemes)
- Drawdown pots that still hold assets
- DB lump-sum death-in-service benefits
If the total estate including the pension punches past the nil-rate bands, the slice above is hit at 40 %.
3. Case study – couple with £1.2m SIPP
Jenny and Mark (both 72) planned to leave their £1.2 million SIPP to children IHT-free. Under the new rules the pension alone triggers an IHT bill of ≈ £350k. Their choices:
- Accelerate withdrawals and gift surplus cash (seven-year rule).
- Buy joint-life annuity – removes pot from estate.
- Use a family investment company to shelter future growth.
4. Five planning actions before 2027
- Review death-benefit nominations and trust options.
- Stress-test your lifetime allowance strategy.
- Consider life cover in trust to fund the future tax.
- Model phased crystallisation vs. UFPLS.
- Book an annual check-in: legislation can still move.
Important: Tax rules are based on current legislation and could change again. Advice tailored to your circumstances is essential.
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