July 16, 2026
Pensions and IHT – the shake-up many are missing
| Research indicates nearly nine in 10 adults are unaware that pensions will fall within IHT from 2027 | Fraudsters are already exploiting confusion around the new rules, offering risky solutions to avoid IHT | While the 2027 reforms will reshape how pensions are treated on death, immediate action is not always advisable |
From April 2027, a significant change to Inheritance Tax (IHT) will take effect. Unused pension funds will no longer sit outside a person’s estate. Instead, they will be included when calculating IHT, potentially exposing them to a 40% charge where thresholds are exceeded.
The end of a tax-efficient era
For many years, pensions have been seen as one of the most tax-efficient ways to pass on wealth, often left untouched while other assets were used first. This long-standing approach is now being overturned, forcing a major rethink of retirement and estate planning.
The awareness gap
Despite the scale of the change, awareness remains low. Research1 suggests that nearly nine in 10 UK adults are unaware that pensions will fall within the IHT net from 2027.
This knowledge gap is already influencing behaviour. An increasing number of people are choosing to access their pensions earlier than planned, with over 116,000 individuals withdrawing funds at age 55 in the past year, a five-year high2. In many cases, this reflects a desire to reduce future tax liabilities or pass on wealth sooner. However, acting too quickly can have consequences, particularly if it could leave you short of income later in retirement.
When change creates opportunity… for scammers
There are also wider risks emerging as periods of uncertainty, combined with pressure to act, can leave individuals more vulnerable to scams. Fraudsters are already exploiting confusion around the new rules, offering so-called solutions to avoid IHT that can put retirement savings at risk.
The key message is clear: while the 2027 reforms will reshape how pensions are treated on death, they do not mean immediate action is always the right course. Careful planning, informed decisions and taking professional advice remain essential to ensure that both retirement security and legacy goals are protected.
The changes from April 2027 are proposed and subject to legislation.
1Standard Life 2026, 2Lubbock Fine 2026
The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. The Financial Conduct Authority does not regulate Will writing, tax and trust advice and certain forms of estate planning.
