Pensions and inheritance tax: the 2027 change

What is changing in April 2027

For years most unused pension pots have sat outside your estate. That means they often pass to your family free of inheritance tax. This changes on 6 April 2027. From that date most unused pension funds count as part of your estate. Your family may then face inheritance tax on them.

The Autumn Budget 2024 set out the change. The government confirmed it in 2025. It now sits in the draft Finance Bill 2025-26.

Why it matters for more families

Pensions have long been a simple way to pass on wealth. That route narrows in 2027. More estates will cross the inheritance tax threshold as a result. The government expects about 10,500 extra estates to face a bill in the first year.

Inheritance tax starts above your tax-free allowances. The main allowance is £325,000. You may get a further £175,000 if you leave your home to your children or grandchildren. Above your allowances the rate can reach 40%.

Where your home fits in

For many people the family home is their largest asset. So property wealth now plays a bigger part in estate planning. One option some people look at is a lifetime mortgage. This is a form of equity release.

A lifetime mortgage lets you borrow against your home. You stay in your home and you keep owning it. The money you release is tax-free, because it is a loan. The loan can lower the value of your estate in two ways. Your estate drops by the size of the debt when you die. And if you give the money away, it may fall outside your estate after seven years.

The other side to weigh up

This is not a simple fix though. Interest builds on the loan over time. That can reduce what your family inherits. Gifts can still count if you die within seven years. The rules on gifts are strict, so you need proper advice. Equity release can also affect means-tested benefits. And it lowers the inheritance you leave behind.

Get the right advice

Inheritance tax planning needs tax advice. We give regulated mortgage and equity release advice. For the tax side we work with your tax adviser or solicitor. Together you get a full picture before you decide.

Worried about the 2027 change? We can talk you through your options with no pressure. Book a chat to see if later life lending fits your plans.

Frequently asked questions

What changes for pensions in April 2027?

From 6 April 2027 most unused pension funds count as part of your estate for inheritance tax. Your family may pay up to 40% on the amount above your allowances.

Will my family pay inheritance tax on my pension?

It depends on the size of your estate and your allowances. Money left to a husband, wife or civil partner stays exempt. A tax adviser can check your position.

Can equity release reduce inheritance tax?

It can play a part. The loan reduces your estate, and gifts may fall outside it after seven years. But interest builds up over time, and the rules are complex. Take tax advice first.

Is a lifetime mortgage safe?

Plans from Equity Release Council members come with safeguards. You keep owning your home, and you can stay there for life. Ask for a personalised illustration to see the features and risks.

How do I get started?

Book a chat with us. We give regulated advice and work with your tax adviser, so you can decide with confidence.

This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration. A lifetime mortgage may reduce the value of your estate and could affect your entitlement to means-tested benefits. Think carefully before securing other debts against your home.