New rules on pensions and Inheritance Tax explained

• From 6 April 2027, most unused pension funds will form part of an estate for Inheritance Tax purposes.
• While spouses, civil partners and charities are still exempt, some families could now face much higher Inheritance Tax bills than before.
• For estates that have money tied up in property and other illiquid assets, Provira’s Estate Advance can help to quickly pay off an Inheritance Tax bill and other estate expenses.

From April 2027, most unused pension funds will be included in an estate for Inheritance Tax purposes, potentially increasing Inheritance Tax bills for some families.

For many years, pensions were one of the most tax-efficient ways to pass wealth on to future generations. However, from 6 April 2027, the rules are changing.

Under new rules, most unused pension funds and pension death benefits will be included as part of a person’s estate for Inheritance Tax (IHT) purposes. This means some estates that previously had no Inheritance Tax owed on unused pensions could become liable for tax, while others may face much bigger bills than before.

For families already dealing with the loss of a loved one, understanding these changes can feel overwhelming. Not to mention having a large Inheritance Tax bill to pay can be incredibly stressful.

This is where Provira can help.

Our Inheritance Tax loan:

• Offers executors up to 50% of the net value of the estate within days
• Only charges simple interest, not compound interest
• Doesn’t need any monthly repayments, the loan is only paid off once the probate process is complete 
• Is secured entirely against the estate, so there’s no personal liability

Plus, we have a compassionate supportive team on hand to guide you through the process, with a team member dedicated to your case throughout. 

To start your application, get in touch today.

What are the new pension and Inheritance Tax rules?

From 6 April 2027, most unused pension funds and death benefits will be included when calculating the value of someone’s estate for Inheritance Tax purposes.

Previously, many pension pots sat outside of an estate and could be passed to beneficiaries without creating an extra Inheritance Tax liability. This is one of the reasons why pensions were such an important part of estate planning.

Under the new rules, however, the value of unused pension funds will generally be added to the rest of the estate when looking at whether Inheritance Tax is due. 

As Inheritance Tax is charged at 40% on assets above the available tax-free allowances, this could increase the amount that needs to be paid to HMRC when a loved one dies.

Additionally, for some families, there is also a risk that pension wealth could be subject to both Inheritance Tax and Income Tax. If the pension holder dies after the age of 75, beneficiaries may pay Income Tax when they withdraw inherited pension funds, meaning part of the pension could first be subject to Inheritance Tax and then Income Tax when accessed.

There are still important exemptions worth knowing about:

• Pension benefits left to a surviving spouse or civil partner are still exempt from Inheritance Tax, as are benefits left to registered charities. 
• Death-in-service benefits will also stay outside of an estate for Inheritance Tax purposes.

The government has said the changes are designed to make sure that pensions are primarily used for retirement, rather than as a way to pass on wealth between generations.

Why are these changes important for estate planners to be aware of?

These changes are important for estate planners to know because historically, retirees would spend money held in ISAs, savings accounts or investment portfolios first, while leaving pension funds untouched wherever possible.

This often meant that wealth built in pensions could be passed onto children and grandchildren relatively tax efficiently.

From April 2027, that may no longer be the case. 

For big estates, these taxes can be a big hit to their overall value.

Who will be affected by the pension and Inheritance Tax changes?

The reality is that most estates will still not pay Inheritance Tax, however under the new rules, more estates might. 

Everyone currently has a £325,000 tax-free allowance, and many families can also benefit from the residence nil-rate band (£175,000) when passing property to direct descendants like children or grandchildren.

Married couples and civil partners can also transfer unused allowances between themselves, potentially passing on up to £1 million tax-free.

However, the changes are more likely to affect:

• Estates with a lot of money in pensions
• Homeowners whose property has increased significantly in value
• Families with big investment portfolios
• Those who intended to leave pension funds directly to children or grandchildren
• Unmarried couples who do not benefit from spouse exemptions and combined allowances

For some estates, adding pension assets into the estate value could push them above the Inheritance Tax threshold for the first time, meaning they will be liable for Inheritance Tax.

Could this cause a cashflow problem for some estates?

Yes, the new changes could definitely cause a cashflow problem for some estates, and this is why estate planning is so important.

Inheritance Tax is due within 6 months of death and has to be paid before probate can be completed. 

If a big chunk of an estate’s value is held in property, investments or pension wealth rather than cash, executors can find themselves in a position where tax is due but there isn’t enough cash available to pay it.

This is where Provira’s Inheritance Tax loan helps. 

Our loan is designed to give executors access to up to 50% of the net value of the estate within days.

We charge simple interest, not compound interest and no early repayment fees either.

If you are administering an estate that is unable to pay an Inheritance Tax bill and need help, get in touch with the team today.

Should people change their estate planning strategy based on the new pension rules?

The answer depends entirely on the situation. For some families, the changes may have very little impact. For others, especially those who have built up wealth in their pensions, it may be worth speaking with a financial adviser.

Changing rules around pensions and Inheritance Tax

The new pension Inheritance Tax rules are coming in April 2027, and they will completely change how pensions can be used in estate planning. 

Although the changes won’t affect every family, those with a lot of wealth being held in pensions should take the time to understand the changes and re-look at estate planning with them in mind. 

And if you’re acting as an executor and facing an Inheritance Tax bill before estate assets can be accessed, Provira’s Estate Advance can help.

How Provira can help executors facing big Inheritance Tax bills

For many executors, the challenge isn’t managing the estate itself, it’s accessing money quickly enough to pay Inheritance Tax within the 6 month deadline.

That’s exactly what Provira’s Estate Advance is designed to help with.

Our Estate Advance provides executors with access to up to 50% of the net value of an estate within days, helping cover estate costs. Unlike traditional bank loans, our advance comes with:

• No monthly repayments
• No personal liability for executors
• No credit checks
• Simple interest rather than compound interest
• Repayment directly from the estate when probate is complete

This can provide valuable breathing space for executors dealing with estates where wealth is tied up in property, investments or pensions.

If you’re administering an estate and are concerned about paying Inheritance Tax, apply for your Estate Advance today.