From April 2027, most unused DC pension funds will be included in your estate for IHT. What changes, who is affected, and what to do now.
This guide is part of ProbateHelp's Wills & Planning guide cluster. Estimated reading time: 14 min.
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No — not from April 2027. Currently, the discretionary nature of pension trustees means the fund sits outside your estate for IHT purposes. From 2027, the government is removing this protection for most pension types. The nomination form still determines who receives the money, but it will no longer prevent the fund from being counted in your estate for IHT.
Yes. The spousal exemption is being preserved. If your pension passes to a surviving spouse or civil partner who is a long-term UK resident, it will remain IHT-free. This is one of the most important planning points — making sure your nomination form names your spouse as the primary beneficiary.
Yes. Funds already designated for drawdown (flexi-access or capped drawdown) will be included in your estate from April 2027. The change applies to the unused portion of the fund at the date of death, regardless of whether you have started drawing from it.
The current rules apply. Under current rules, most DC pension funds sit outside the estate for IHT purposes. The April 2027 changes only apply to deaths on or after 6 April 2027.
Your personal representatives (executors) are responsible for reporting and paying the IHT. They will need to contact each pension scheme to obtain a date-of-death valuation, calculate the IHT position across the whole estate, and decide how the pension-related IHT will be paid. In limited circumstances, they will be able to direct the pension scheme administrator to withhold benefits and pay IHT to HMRC before releasing the balance.
Yes, in limited circumstances. Personal representatives can direct a pension scheme administrator to withhold up to 50% of the taxable benefits until the earlier of withdrawal of the notice, payment of the relevant IHT and interest, or 15 months after the end of the month in which the person died. GOV.UK says this will not apply to exempt benefits, funds under £1,000, or continuing annuities.
Potentially, yes — and this is one of the less obvious risks. The Residence Nil-Rate Band (up to £175,000 per person) starts to taper away when the total estate exceeds £2 million. Under current rules, your pension is not counted toward that £2 million. From 2027, it will be. If your non-pension estate is close to £2 million, adding a pension pot could push you over the taper threshold and increase your IHT bill by more than the tax on the pension alone.
Yes — there are several planning strategies worth discussing with a financial adviser. These include drawing down your pension earlier and making gifts (which fall outside the estate after seven years), updating your nomination forms to name your spouse as primary beneficiary, considering whole-of-life insurance written in trust to cover the IHT bill, and reviewing whether other assets (ISAs, property) should be spent first to preserve the pension for a spouse.