Pensions and Inheritance Tax Changes from April 2027: What It Means for Your Estate

By Alexandra Livesey, Partner & Head of Private Client 

For many years, pensions have occupied a slightly unusual position in estate planning.

When we met with clients to discuss their Wills, Inheritance Tax planning and wider affairs, pension funds were often considered separately from the rest of the estate. This sometimes meant that pension nominations, Wills and tax planning could be reviewed at different times without causing particular concern.

From April 2027, that position is set to change.

Under the new rules, pension funds will be taken into account when calculating Inheritance Tax. Whilst this may sound like a technical tax change, the reality is that it could affect the way many existing estate plans work in practice.

The important point is not simply whether more tax may become payable. In many cases, the bigger issue is that arrangements which were perfectly sensible when they were put in place may no longer produce exactly the outcome originally intended.

Looking at the whole picture

One thing I often find when speaking with clients is that each part of their planning has been dealt with at different stages of life.

A Will may have been prepared several years ago. Pension nominations may have been completed when employment changed. Life insurance arrangements may sit elsewhere again. None of that is unusual.

Historically, those different arrangements could often sit alongside one another without causing significant difficulties. Going forward, however, the interaction between them becomes much more important.

Rather than looking at pensions separately, it is now necessary to consider how pension funds interact with property, savings, investments, jointly owned assets and the provisions of a Will.

That joined-up approach is likely to become increasingly important as families attempt to understand what their beneficiaries may actually receive.

Why existing plans may need reviewing

This does not mean previous planning has been done incorrectly.

Far from it.

Many Wills and estate plans were prepared entirely appropriately based upon the rules and guidance that applied at the time. The challenge is simply that the landscape is changing.

As a result, some assumptions that once worked well may no longer hold true.

For example, a person may have prepared a Will on the understanding that their pension sat outside the estate for Inheritance Tax purposes. Their chosen beneficiaries, their pension nominations and the way assets were divided under the Will may all have made perfect sense on that basis.

Once pension funds become part of the Inheritance Tax calculation, those same arrangements may produce a different result. The client's wishes may not have changed at all, but the way the figures interact could be significantly different.

In some cases, beneficiaries may ultimately receive less than originally anticipated. In others, the tax burden may fall differently than expected.

Pension nominations matter more than ever

Pension nominations have always been important, but the forthcoming changes make them even more significant.

It is not uncommon for pension nominations to have been completed many years ago and then forgotten about. Relationships change, family circumstances evolve and beneficiaries may no longer be the same people a client would choose today.

Where pension nominations and Wills have been reviewed at different times, it is sensible to ensure they still work together and support the same overall objectives.

A surprisingly large amount of estate planning involves making sure that different documents are not unintentionally pulling in different directions.

The impact on estate administration

The changes are likely to affect not only planning but also the administration of estates after someone dies.

When an executor is administering an estate, obtaining accurate information about assets and liabilities is already a key part of the process.

Once pension funds form part of the Inheritance Tax calculation, additional information may be required before the tax position can be finalised. Executors may need to wait for valuations or confirmations relating to pension benefits before they can be confident that the overall Inheritance Tax position has been established correctly.

As a result, some estates may take longer to administer than families have historically expected.

This is another reason why clear planning and up-to-date records can be so valuable. Anything that helps simplify matters for executors can make a difficult time a little easier for those left behind.

Is this something to worry about?

Not necessarily.

The April 2027 changes will not mean that everyone needs to rewrite their Will or undertake extensive planning immediately.

What they do mean is that it becomes sensible to review existing arrangements and ensure they still achieve what was originally intended.

Often, relatively small adjustments can make a significant difference. The key is understanding how the various components of an estate now interact with one another and whether any assumptions need revisiting in light of the new rules.

Final thoughts

The fundamentals of good estate planning have not changed.

Most people still want the same things: to look after their families, minimise complications, protect hard-earned assets and ensure their wishes are carried out as intended.

What is changing is the importance of viewing everything together rather than in isolation.

Pensions, Wills, tax planning, property ownership and beneficiary arrangements can no longer be viewed as entirely separate pieces of the puzzle. The challenge is understanding how they fit together and whether the overall picture still reflects your wishes.

At Solomons Solicitors, we regularly help clients review their arrangements to ensure that changes in legislation do not create unintended consequences.

If your Will, pension nominations or wider estate planning arrangements have not been reviewed in recent years, now may be a sensible opportunity to take a fresh look and ensure everything continues to work together as intended.

About the Author

Alexandra Livesey is a Partner and Head of Private Client at Solomons Solicitors. She advises individuals and families on Wills, trusts, estate planning, probate and Inheritance Tax planning. Alexandra is particularly passionate about helping clients protect the assets they have worked hard to build and ensuring their wishes are carried out clearly, efficiently and with as little stress as possible for their loved ones.