HMRC Inheritance Tax changes 2027: what you need to know

• From 6th April 2027, HMRC have announced that unused pension funds will be included in the value of an estate for Inheritance Tax purposes. 
• This will impact many estates, pushing a lot of families into the taxable range.
• If your estate is close to the Inheritance Tax threshold and includes a pension pot, Provira’s Estate Advance could provide a financial lifeline. 

HMRC have announced that, from 6th April 2027, unused pension pots will now be included as part of the net estate valuation, meaning more families may face an Inheritance Tax bill. 

This will be relevant for all deaths that take place on or after 6th April 2027.

Currently, the nil-rate band, or tax-free allowance, sits at £325,000. If no other allowances can be applied, the value of the estate that sits above this will be charged at a tax rate of 40%.

This shift is one of the biggest changes HMRC has made in a long time. Combined with this year’s reforms on Agricultural and Business Property Relief, some estates could see their Inheritance Tax bill significantly increase in the very near future.

This is where our Estate Advance can help.

Designed for executors who are struggling to find the funds to pay off urgent expenses such as a high Inheritance Tax bill, we provide access to up to 50% of the net value of the estate within days.

Not only that, but we only charge simple interest, not compound interest and: 

• Don’t charge early repayment fees
• Don’t require personal liability or collateral
• Don’t ask for monthly repayments

Plus you’ll have a member of our team on hand to guide you through the process from start to finish. 

To start your application today, get in touch via our form.

What are the HMRC Inheritance Tax changes in 2027?

From 6th April 2027, most unused defined contribution pension pots and pension death benefits will become part of your estate when calculating the value for Inheritance Tax purposes. 

This means that many estates will suddenly fall above the Inheritance Tax threshold.

Currently, unused defined contribution pensions – pots of money that you’ve built up over time, including self-invested personal pensions – are not included as part of your estate when it comes to Inheritance Tax. 

This all changes in April 2027. The new rules are being implemented to help prevent pensions being used as a way to transfer wealth tax-free. 

The changes apply to:

Uncrystallised pension funds

A pension pot that has not yet been accessed to provide income. When a pension pot is used, it becomes crystallised.

Drawdown funds

When you partially dip into a pension pot, but there is a balance left over.

Lump sum death benefits

One-off payments that are paid out to a nominated person when the pension holder dies. 

In short, if there’s any money left in a pension pot when someone dies, it will now be included in the value of an estate. 

Though pensions passing to a spouse or civil partner, death-in-service schemes or charity transfer remain unaffected, the new changes will increase the chances that the estate will be pushed over the nil-rate band and ultimately face a higher Inheritance Tax bill.

How much more Inheritance Tax will I pay from 2027?

HMRC has predicted that affected estates will face an additional Inheritance Tax bill of £34,000.

For estates that are already almost at the threshold or contain large pension pots, the exposure will most likely be significantly higher.

This is based on HMRC’s estimations that in the 2027/28 tax year, 213,000 estates will include pensions as part of their estate. 

Of this number, 10,500 estates will now have to face an Inheritance Tax bill where they wouldn’t have previously.

It is also expected that around 38,500 estates will pay more IHT than they would have before this change was introduced. This is due to the fact that in the UK the average pension pot for those aged 65-74 (ONS, January 2025), sits around £145,900.

For many families, including their pension within their estate is enough to push them above the tax-free threshold.

Let’s break down how this could look in numbers.

If an estate has £400,000 in bank accounts and £150,000 in a pension, the estate value is £550,000.

After applying the nil-rate band of £325,000, the standard rate of 40% Inheritance Tax is due on the remaining £225,000.

This leaves them with an Inheritance Tax bill of £90,000.

This doesn’t take into consideration any other tax-free allowances available. We go into more detail around these in our guide here.

Though these numbers are just an estimation at this point, they still demonstrate the impact that the HMRC Inheritance Tax changes being introduced in 2027 will have on many estates. 

Can Inheritance Tax be paid from a pension pot?

Technically yes, but only for the portion of tax due on the pension pot. This is managed closely by the executor.

Under the new HMRC Inheritance Tax (IHT) rules that come into effect in 2027, pension schemes might be instructed by the executor to pay IHT directly to HMRC. 

This money can only be put towards the tax due on the pension pot itself and the schemes are allowed to pre-emptively withhold 50% of the pension value to cover this.

As all estate assets are frozen until probate is complete, cash in pension pots cannot be used to pay off the wider estate Inheritance Tax bill. 

Under the current rules, pension pots have been occasionally used as a source of liquidity for estates. This is because they’ve sat outside of the estate, and so could be freely distributed to beneficiaries or used to pay off an Inheritance Tax bill.

However, pension pots now fall under the same guidelines as the rest of the estate assets so they’re locked away until probate is complete. 

This is predicted to cause more liquidity problems for estates who are facing urgent estate expenses such as a higher Inheritance Tax bill.

While the changes only come into effect from April 2027, it’s more important than ever that an estate is carefully planned to help reduce their exposure to Inheritance Tax.

How Provira can help with the HMRC Inheritance Tax changes in 2027

The upcoming HMRC changes to Inheritance Tax in 2027 mean more estates will face Inheritance Tax bills, with higher bills expected for those who are already exposed to IHT.

Where pension pots used to be able to help cover an Inheritance Tax bill, under the new rules they’ll now form part of the estate, meaning this is no longer possible.

The reality will be that more families will struggle to find the funds to pay their bill, putting a greater financial and emotional strain on the probate process.

This is where Provira can help.

Our Estate Advance:

• Gives access to up to 50% of the net value of the estate, within days
• Charges simple interest, not compound interest, keeping costs low
• Asks for no personal liability
• Takes HMRC payments off your hands
• Doesn’t request monthly repayments, the full amount is repaid in full once the estate has been settled

To find out if you’re eligible, apply today. It only takes a few minutes.