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, trustee or administrator discretion can keep many benefits outside the estate. From 2027, that discretion will no longer keep most in-scope pension property outside IHT. An expression of wish remains relevant to the scheme's decision, but it may not bind the decision-maker and does not itself prevent the benefit from being counted for IHT.
Spouse or civil-partner exemption is preserved, but the residence-based conditions still matter. A benefit passing to a surviving spouse or civil partner who is a long-term UK resident will normally be exempt. Cross-border estates and nominations should be checked against the current rules and the actual scheme decision.
For deaths on or after 6 April 2027, in-scope unused funds already designated for drawdown (flexi-access or capped drawdown) will be included in the IHT calculation, subject to the applicable exclusions and exemptions. 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. Where a personal representative knows or reasonably believes IHT may be due on notional pension property, a valid notice can require a registered scheme to withhold up to 50% of a beneficiary's entitlement. It ends on withdrawal, payment of the relevant IHT and interest, or 15 months after the end of the month of death. Excluded benefits and benefits for exempt beneficiaries are not subject to withholding.
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, many discretionary pension benefits are outside that calculation. For deaths on or after 6 April 2027, in-scope pension property will count. 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.
A regulated financial adviser and, where needed, a tax or legal professional can review the whole position. Drawing benefits, gifting, nominations, insurance and spending order can have IHT, Income Tax, care-funding and retirement-income consequences. No single strategy is right for every family, and a gift is not automatically outside the estate merely because seven years pass if another rule applies.