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IHT on Pensions 2027: What Expatriates Need to Know

  • Writer: Paratus Wealth
    Paratus Wealth
  • 2 days ago
  • 6 min read

Updated: 23 hours ago

NON-UK RESIDENTS ONLY: This article is intended for persons resident outside the United Kingdom. It is not addressed to UK residents. If you are resident in the United Kingdom, this content is not directed at you.


Your Pension Was Usually IHT-Free. From April 2027, That Changes.


IHT on Pensions 2027 planning for expatriates

For many years, unused funds in discretionary UK pension arrangements often sat outside the estate for UK Inheritance Tax purposes. Families planned around this, particularly where pensions were used as part of intergenerational wealth transfer planning. However, some non-discretionary pension arrangements were already treated differently, so it is not accurate to say every pension was always outside IHT. Source: HMRC policy paper on unused pension funds and death benefits


From 6 April 2027, most unused pension funds and pension death benefits will be included in the value of a person’s estate for IHT purposes. The change applies to deaths on or after that date. Source: HMRC policy paper on unused pension funds and death benefits


IHT on Pensions 2027: What is changing


The government announced at Autumn Budget 2024 that most unused pension funds and pension death benefits would be brought into IHT. HMRC’s latest policy paper confirms that personal representatives, rather than pension scheme administrators, will be liable for reporting and paying any IHT due on those pension values. Source: HMRC policy paper on unused pension funds and death benefits


The nil-rate band is currently £325,000 and the residence nil-rate band is up to £175,000 where the conditions are met. Those thresholds are fixed at current levels through 2029-30. IHT is commonly charged at 40% on the value above available allowances, reliefs and exemptions. Source: GOV.UK nil-rate band policy paper


Adding pension wealth to an estate may create an IHT liability where there was none before, or increase the liability for estates that were already taxable. HMRC estimates that in 2027-28 around 10,500 estates with inheritable pension wealth will become liable to IHT where they would not previously have been, and around 38,500 estates will pay more IHT than before. Source: HMRC policy paper on unused pension funds and death benefits


Hold a UK pension and live outside the UK?


The April 2027 pension IHT changes could affect how your pension fits into your wider estate plan. Use our IHT Calculator to get an initial indication of your potential exposure.


Which pension benefits are affected


The measure brings most unused pension funds and pension death benefits into scope. The government has also confirmed important exclusions, including death-in-service benefits payable from a registered pension scheme and dependant’s scheme pensions from a defined benefit arrangement or collective money purchase arrangement. Source: HMRC policy paper on unused pension funds and death benefits


  • Likely in scope: unused defined contribution pension funds, unused funds in drawdown, and many pension death benefits.

  • Excluded under current HMRC policy: death-in-service benefits payable from registered pension schemes.

  • Excluded under current HMRC policy: dependant’s scheme pensions from defined benefit arrangements or collective money purchase arrangements.

  • Scheme-specific rules still matter. Defined benefit arrangements can be complex and should be reviewed individually.


Reporting and payment


Personal representatives will be responsible for reporting and paying IHT due on unused pension funds and pension death benefits. HMRC has said that, in limited circumstances, personal representatives may direct pension scheme administrators to withhold 50% of taxable benefits for up to 15 months from the date of death and pay IHT to HMRC before releasing the balance. Source: HMRC policy paper on unused pension funds and death benefits


This process is intended to help estates meet the tax liability where the pension itself creates the cash-flow issue. It is not a substitute for estate planning and will depend on the final legislation, HMRC systems and scheme administrator processes. Source: HMRC policy paper on unused pension funds and death benefits


What this means for expatriates


Living abroad adds layers that UK-based planning may not face. Your pension may be in the UK, your estate may include assets in several jurisdictions, and your beneficiaries may be resident somewhere else. A UK IHT charge on pension wealth can therefore interact with local succession law, local tax rules, double tax relief, and the timing of probate or estate administration.


Cross-border planning matters.


If your pension, estate, beneficiaries or tax residence sit across more than one country, it is worth reviewing the position before April 2027. Paratus Wealth can help coordinate the financial planning conversation across the jurisdictions that matter to you. Learn more about our UK Inheritance Tax Planning service for expatriates.


The nil-rate band and your wider estate


The £325,000 nil-rate band applies before IHT is charged, and the residence nil-rate band may add up to £175,000 where a qualifying residence passes to direct descendants and the estate meets the conditions. For many expatriates, the UK home may have been sold, retained, rented out, or replaced by overseas property, so the residence nil-rate band needs a specific review rather than an assumption. Source: GOV.UK nil-rate band policy paper


QNUPS and non-UK pension structures


Do not assume that moving retirement assets to a Qualifying Non-UK Pension Scheme or another non-UK pension wrapper automatically removes future UK IHT exposure. The government’s consultation material stated that the April 2027 pension IHT changes were intended to apply equally to UK registered schemes and QNUPS. Suitability depends on retirement objectives, tax residence, long-term UK residence, scheme rules, transfer rules, local law and regulatory advice. Source: HMRC July 2025 pension IHT consultation outcome


Drawdown timing


Before April 2027, drawdown timing was often treated mainly as an income, investment and pension-tax planning question. From April 2027, it also has estate planning consequences. Drawing funds may reduce pension value but can create income tax, investment, gifting, local-tax and estate-planning consequences elsewhere. The right answer depends on the individual facts.


What to do before April 2027


  1. Understand your position: list pension values, scheme types, beneficiary nominations, other estate assets and the jurisdictions involved.

  2. Review beneficiary nominations: they sit outside your will and may no longer reflect your intentions.

  3. Model the IHT exposure: compare the position before and after pension values are included in the estate.

  4. Review drawdown strategy: assess income tax, estate tax, investment risk and local tax consequences together.

  5. Watch the final legislation and HMRC guidance: the operative date is 6 April 2027, but practical processes can still be refined before implementation.

  6. Seek regulated advice: pension, estate and cross-border tax planning should not be handled in isolation.


Ready to review your position?


If you hold a UK pension and live outside the UK, the April 2027 changes are worth understanding now.


A Paratus Wealth adviser can help you review your pension, estate planning position, beneficiary nominations and wider cross-border financial plan.


Or start by using our IHT Calculator, or learn more about our UK Inheritance Tax Planning service for expatriates.



Frequently asked questions about IHT on Pensions 2027


Will UK pensions be subject to Inheritance Tax from April 2027?


From 6 April 2027, most unused pension funds and pension death benefits are expected to be included in the value of a person’s estate for UK Inheritance Tax purposes. The position may depend on the pension arrangement, the final legislation and the individual’s circumstances.


Does this affect expatriates with UK pensions?


Yes, expatriates with UK pensions may be affected. Living outside the UK can add further complexity because pension rules, estate planning, tax residence, beneficiary location and local succession laws may involve more than one jurisdiction.


Are all pension benefits included?


Not all benefits are treated the same way. HMRC has indicated that most unused pension funds and pension death benefits will be brought into scope, but certain benefits, such as death-in-service benefits from registered pension schemes and some dependant’s scheme pensions, may be excluded under current policy.


What should expatriates do before April 2027?


Expatriates should review their pension values, scheme types, beneficiary nominations, wider estate position, drawdown strategy and the jurisdictions involved. Regulated financial advice and separate tax or legal advice may be needed before making decisions.


Sources


4.       HMRC Inheritance Tax guidance: https://www.gov.uk/inheritance-tax


Disclaimer


The information provided on this website is intended exclusively for individuals located outside the United Kingdom and must not be used or relied upon by persons within the United Kingdom. This website is for informational purposes only and does not constitute, nor should it be relied upon as, financial, tax, legal, accounting, pension transfer, investment, or estate planning advice. You should consult a suitably regulated financial adviser in your country of residence or in the relevant jurisdiction to assess your personal circumstances and obtain advice tailored to your individual situation. If any content on this website may have tax, legal, or accounting implications, you should seek guidance from independent professional advisers in those areas. When considering financial investments, please note that past performance is not indicative of future results, and the value of investments may fluctuate, resulting in potential losses as well as gains. For pensions, you should regularly review your pension arrangements to ensure they remain aligned with your objectives. The benefits you ultimately receive will depend on future investment performance, applicable pension scheme rules, tax law, and the law of the relevant jurisdictions. Paratus Wealth, its officers, and employees do not and cannot provide tax, accounting, or legal advice. Specific advice should be sought from a relevant professional tax adviser in your country of residence and any other relevant jurisdiction.

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