By Chandler Financial, Partner Practice of St. James’s Place
For many years, pension schemes have been one of the most effective tools for intergenerational wealth planning in the UK. Because they have typically sat outside of an individual’s estate, they have offered a way to pass on retirement savings to loved ones free from Inheritance Tax (IHT).
However, the landscape is shifting. Following announcements in the 2024 Autumn Budget and subsequent legislation in the Finance Act 2026, the government is introducing significant reforms From 6 April 2027, most unused pension funds and death benefits will be brought within the value of a deceased person’s estate for Inheritance Tax purposes .
As you review your long-term financial plans, it is important to understand what these changes mean and how they might affect your family’s future.
What Is Changing?
Currently, most defined contribution pensions—such as SIPPs or personal pension pots—are held in discretionary trust arrangements, meaning they are generally exempt from IHT.
From 6 April 2027, this will change. When a pension member dies on or after this date, any "unused" pension funds (such as drawdown pots or uncrystallised funds) will be treated as "Notional Pension Property" (NPP) and included in the member’s taxable estate.
Key points to note:
· Estate Value: These funds will be added to your property, investments, and other assets to determine if your estate exceeds the tax-free thresholds (the Nil-Rate Band).
· Standard Rate: To the extent that your total estate exceeds your available allowances, the value of the pension could be subject to IHT at the standard rate of 40%.
· Exceptions Remain: Certain benefits, such as "death in service" payments, charity lump sum death benefits, and most defined benefit (final salary) scheme pensions that are already paying out, will generally remain exempt .
· Spousal Exemption: The existing spousal and civil partner exemption remains in place . Pension funds left to a spouse or civil partner will continue to be exempt from IHT.
What This Means for Your Planning
It is natural for these changes to raise questions about your current strategy. However, it is worth noting that for many families, these rules may not result in an increased tax bill.
· Existing Allowances: You still have the standard Nil-Rate Band (£325,000) and, if passing your main home to direct descendants, the Residence Nil-Rate Band (up to an additional £175,000). Married couples and civil partners can combine these, allowing for up to £1 million to be passed on tax-free in many circumstances.
· Strategic Flexibility: These reforms are designed to align pensions with their original purpose: funding retirement. Depending on your objectives, you may still find that the tax-efficient growth offered by a pension environment outweighs the potential IHT implications.
· Integrated Approach: Planning now involves looking at your entire financial picture—not just your pension—to see how these assets interact with your property and other investments.
How Chandler Financial Can Help
The period between now and April 2027 is an ideal time to review your estate planning. Whether it is ensuring your "Expression of Wish" nomination forms are up to date, considering the timing of potential gifts, or modelling your estate’s total value, we are here to provide the clarity you need.
To get in touch please contact me directly
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.
This article is for information only and does not constitute financial advice. Please contact Chandler Financial to discuss your specific situation.
Chandler Financial an Appointed Representative of and represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial
Conduct Authority).
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SJP Approved 17/07/2026
Chandler Financial was founded on the principle that expert financial guidance should be accessible, transparent, and available to all. After spending two decades in the industry, I recognised that…
