10/07/2026 11:37:00
Under current legislation, pension funds are generally excluded from inheritance tax (IHT) calculations. This means that, up until 5 April 2027, any remaining pension assets can typically be passed on to beneficiaries in accordance with the deceased's wishes, without attracting the standard 40% IHT charge.
Significant changes were announced in the Autumn Budget announced on 30 October 2024. These reforms propose an amendment to the Inheritance Tax Act 1984, whereby, effective from 6 April 2027, most unused pension funds will be included within an individual's estate for IHT purposes. It is important to note that defined benefit (final salary) schemes are expected to remain exempt from these changes.
From April 2027, pension savings that have historically sat outside the IHT regime may instead contribute to the taxable estate. As a result, beneficiaries could face an increased IHT liability, currently levied at 40%. For pension arrangements holding liquid assets, such as cash or listed investments, calculating and settling any IHT liability is likely to be relatively straightforward.
However, complexities arise where pensions, particularly Self-Invested Personal Pensions (SIPPs), hold illiquid assets such as commercial property.
Read our full guide on inheritance tax changes for commercial property owners, created in partnership with WAY Trustees Limited, to understand the potential implications for commercial property and property-based pension arrangements.