Compliance
Navigating the Reform to Inheritance Tax: Unused Pensions & Death Benefits (From 2027)
Unused pension funds and death in service benefits will be treated differently from 6 April 2027 — here’s how the changes affect your estate tax exposure and what plans to make now.
By NomadicTax Research Team • 5-8 min read • November 23, 2025
## Policy change explained
- From **6 April 2027**, **most unused pension funds and death benefits** from registered pension schemes will be **included within your estate** for **Inheritance Tax (IHT)** purposes. ([gov.uk](https://www.gov.uk/government/publications/reforming-inheritance-tax-unused-pension-funds-and-death-benefits/inheritance-tax-on-unused-pension-funds-and-death-benefits?utm_source=openai))
- **Personal representatives (PRs)** will have the responsibility of **reporting and paying the IHT** on these pension assets. ([gov.uk](https://www.gov.uk/government/publications/reforming-inheritance-tax-unused-pension-funds-and-death-benefits/inheritance-tax-on-unused-pension-funds-and-death-benefits?utm_source=openai))
- Some death in service benefits will be **excluded**, particularly those from registered pension schemes or defined benefit plans, to ensure fairness and limit unintended distortions in IHT planning. ([gov.uk](https://www.gov.uk/government/publications/reforming-inheritance-tax-unused-pension-funds-and-death-benefits/inheritance-tax-on-unused-pension-funds-and-death-benefits?utm_source=openai))
## Why this matters for compliance and planning
- Pension plans have long been used to transfer wealth beyond death without a tax charge. This change introduces new estate planning implications for pension holders and beneficiaries.
- You’ll need to consider how pension wealth fits into your wider estate — it may push you closer to IHT thresholds or change decisions about contributions, withdrawals, or nominations.
- Ensure your **wills, death nominations**, and beneficiaries are aligned with the new measure, especially for death-in-service benefits or discretionary pensions.
## Practical examples
| Case | Old treatment | New treatment (post-6 April 2027) |
|---|---|---|
| Jane has a personal pension pot with £200,000 unused at her death, and assets of £400,000 estate | Pension pot excluded; only £400,000 counted for IHT | Estate treated as £600,000, potentially exceeding nil-rate band, so IHT may apply on excess |
| Mark has death in service benefits of £50,000 from employer scheme | These benefits may or may not have counted, depending on structure | If from registered pension scheme, **excluded** under new rules; no IHT on them even though the rest of unused pot is included ([gov.uk](https://www.gov.uk/government/publications/reforming-inheritance-tax-unused-pension-funds-and-death-benefits/inheritance-tax-on-unused-pension-funds-and-death-benefits?utm_source=openai)) |
## Steps to prepare now
1. **Inventory your pension arrangements**: Which types of pension schemes you have, amount unused, whether death in service benefits apply.
2. **Update estate documents**: Wills, nominations, trust arrangements should consider when this change takes effect and how obligations will shift to personal representatives.
3. **Adjust contribution strategies** if necessary: For some, it may make sense to make withdrawals or reassign pension wealth while alive to reduce estate exposure.
4. **Seek professional advice**: For larger estates particularly near or above IHT thresholds, a specialist can help model scenarios and perhaps make use of reliefs or exemptions.
5. **Communicate with pension scheme administrators** to understand how death benefits are handled, what documentation exists, and what disclosures will be required.
## Compliance implications for representatives and administrators
- Personal representatives will need to learn new reporting and payment protocols once the law changes.
- Pension scheme administrators will need to understand scopes and exclusions — ensuring they can advise participants or their estates correctly.
- Beneficiaries should expect additional Q&A and perhaps delays around probate and estate settlement as estate values become more complex.
## Summary
These reforms to Inheritance Tax represent a significant tightening of tax liability on wealth passed via unused pension funds and death benefits. If you have pension wealth, this is a chance to review your overall estate plan and ensure finances, wills, and beneficiary nominations are aligned. Early planning now can reduce surprises and avoid panic when the change becomes law in April 2027.