Will Your UK Pension Be Taxed for Inheritance Tax From 2027? What Expats Need to Know

Direct answer: Yes. Under the UK's Finance Act 2026, which received Royal Assent in March 2026, unused defined contribution pension funds and death benefits will be brought into the scope of UK Inheritance Tax for deaths occurring on or after 6 April 2027. Previously, most pensions sat outside the estate entirely.

Source: HMRC technical note, GOV.UK

What actually changed

For decades, a UK pension was one of the most effective estate-planning tools available. Money left inside it on death passed to beneficiaries free of Inheritance Tax, regardless of the size of the rest of the estate. From April 2027, that changes. Unused pension funds and lump-sum death benefits will be counted as part of the deceased's estate for IHT purposes, taxed at 40% above the available threshold, with a further income tax charge possible for beneficiaries over 75.

Who does this actually affect?

Government estimates put the number at around 10,500 additional estates a year, a small percentage of total deaths, but a very real number for anyone who built a retirement and estate plan on the old assumption. It affects UK nationals living abroad just as much as UK residents. A pension does not stop being a UK pension because the holder relocated.

Does this affect defined benefit pensions too?

Largely no. Final salary schemes generally can't be passed on the same way and fall outside most of this change. It's unused defined contribution pots and their death benefits that move into scope.

What can you actually do about it before 2027

A pension can't simply be transferred into a different type of wrapper, it's a different legal structure with its own rules. But this is exactly why now is a sensible time to ask a narrower question: does all of your retirement wealth need to sit inside a pension, or could some of it be drawn down, in a planned and tax-appropriate way, and moved into a structure built for cross-border estate planning from the outset?

If that's a question you're asking, a Lump Sum Investment Plan is worth understanding before you decide anything. It lets you nominate beneficiaries directly, so the money can reach them without going through the same executor and probate process a pension now faces under the 2027 rules. It moves with you if you relocate again. And because of how the underlying structure works, your funds sit legally separate from anyone else's, protected from claims against the wider pool.

None of this changes what tax you'd owe when you draw funds out of a pension itself, that depends entirely on your own circumstances and needs proper advice. What it does give you is somewhere to put that money once it's out, rather than leaving it exposed to a set of rules that just changed under it.

Related reading: International retirement planning: why an offshore pension structure beats a local one | Estate planning across borders: how an IAL policy protects what your clients leave behind

Talk to your IFA about whether drawing down and restructuring part of your pension makes sense before April 2027, or get in touch to be connected with one.

Tax treatment depends on individual circumstances and may change. This content is for marketing purposes only. We do not provide financial or investment advice. Please consult a qualified professional before making any financial or investment decisions.