Your UK Pension and the 2027 Inheritance Tax Change: What Expats Need to Know Now
Updated: Aug 16
Last updated: 11 August 2026 · Reviewed by the Paratus Wealth editorial team Rules checked against Finance Act 2026 and HMRC guidance published to that date.
A UK pension has long sat outside inheritance tax in most cases, and for many families it was the part of an estate that passed on cleanly. On 18 March 2026 that changed in law. On 6 April 2027 it changes in practice.
If you have moved abroad and assumed that distance settled the matter, it does not. The detail below is worth ten minutes now, while there is still time to look at it properly.
What changes on 6 April 2027
Finance Act 2026 received Royal Assent on 18 March 2026. It amends the Inheritance Tax Act 1984, the Finance Act 2004 and the Income Tax (Earnings and Pensions) Act 2003, and it applies to deaths on or after 6 April 2027.
That date matters for a second reason. A great deal of the commentary still circulating online was written between the Autumn Budget 2024 announcement and Royal Assent, when the shape of the rules was still moving. If something you were told or read is undated, or dated before March 2026, it is worth checking again.
From 6 April 2027, most unused pension funds and pension death benefits are added to the value of your estate for UK inheritance tax. Above the nil-rate band, the excess is generally charged at 40%.
Are you actually affected?
Establish this before anything else, because a meaningful number of people worrying about this change are worrying about a policy that does not reach them.
Two things are excluded:
Death in service benefits payable from a registered pension scheme
Dependants' scheme pensions from a defined benefit arrangement, or from a collective money purchase arrangement
Defined benefit arrangements can be complex and are worth reviewing individually rather than assuming either way.
And most estates will still pay nothing. HMRC has stated that more than 90% of estates each year will continue to pay no inheritance tax after the changes. HMRC's own estimate for 2027-28 is that around 10,500 estates with inheritable pension wealth will become liable where they would not previously have been, and around 38,500 estates will pay more than before.
Those are not large numbers against the population. The question is only whether your estate is one of them, and a UK pension added on top of property moves people across the line faster than they expect.
Does this apply if I live abroad?
Yes, and this is the point most often missed.
Becoming non-UK resident can take your worldwide assets outside UK inheritance tax. It does not move an asset that is situated in the UK. A UK-registered pension, whether a SIPP, a personal pension or an old workplace scheme, is a UK-situated asset. From 6 April 2027 it stays within UK inheritance tax regardless of where you live or how long you have been away.
There is a second layer. Under the residence-based rules that took effect on 6 April 2025, if you were a long-term UK resident before you left, your estate can remain exposed to UK inheritance tax on your worldwide assets for between three and ten years after departure, depending on how long you had lived in the UK.
Note the language, because it changed. Since 6 April 2025 the test is long-term residence, not domicile. If a document or a website still frames your exposure around domicile, it is describing a regime that no longer applies.
For many British expatriates a UK pension funds a life abroad. From April 2027 it also sits inside the inheritance tax net.
Where your estate sits against the thresholds
The nil-rate band is £325,000. Above it, the excess is generally taxed at 40%.
A residence nil-rate band of up to £175,000 may also apply where a qualifying residence passes to direct descendants. Both are frozen at their current levels rather than rising with inflation.
The part most coverage skips: the residence nil-rate band is tapered away for larger estates. Where the net estate exceeds £2m, it is withdrawn by £1 for every £2 above that threshold. An estate large enough to be worried about the pension change is often large enough to be losing this allowance as well.
For expatriates there is a further wrinkle. The residence nil-rate band depends on a qualifying residence passing to direct descendants. If the UK home was sold, retained, let out, or replaced by property overseas, that allowance needs a specific check rather than an assumption.
The position after age 75
If you die after age 75, the same pension can be reached twice.
Inheritance tax of up to 40% applies to the unused fund as part of your estate. Your beneficiaries then pay income tax at their own marginal rate on what they draw from the fund.
How the two charges interact, and whether any relief applies to the overlap, is set out in HMRC's technical note and should be checked against your own position rather than assumed. Concern in the profession has centred on the mechanics rather than the principle, particularly in the early years. Trade press coverage in April 2026 reported advisers warning of "painful teething challenges" in this area.
Where death occurs before 75, the inheritance tax position changes in the same way from 6 April 2027, but the income tax treatment of what your beneficiaries draw is not the same. Establish which side of that line your own position falls on.
Illustrative of the mechanism only. This is not a calculation and not a combined rate. How the two charges interact, and whether any relief applies to the overlap, is set out in HMRC's technical note and depends on each beneficiary's own tax position.
The checklist below is written for people already living outside the UK. Paratus Wealth does not offer services to UK residents.
Work out where you stand: the 2027 Pension Inheritance Tax Checklist
Ten questions to ask before the rules change, including the two exclusions that take some people out of scope entirely, the residence tail of three to ten years, and the reporting problem that catches families spread across borders.
11 pages. No charge, and no obligation.
Who actually has to do the work
This is the question almost nobody is asking, and for anyone living abroad it is the most important one on the page.
From 6 April 2027, personal representatives, meaning your executors or administrators, are liable for reporting and paying the inheritance tax due on unused pension funds and death benefits. Not the pension scheme. The people administering your estate.
That creates a sequencing problem. Pension scheme administrators must share information and respond to notices before the grant of probate is issued. Your personal representatives therefore have to prove their identity and authority to a UK pension scheme administrator at a point when they do not yet hold the document that would normally evidence it. Meanwhile the inheritance tax itself falls due six months after the end of the month of death, whether or not the paperwork has caught up.
HMRC has said that in limited circumstances personal representatives may direct a pension scheme administrator to withhold 50% of taxable benefits for up to 15 months from the date of death, and pay the inheritance tax to HMRC before releasing the balance. That is intended to help where the pension itself is what creates the cash-flow problem. It is not a substitute for planning, and it depends on HMRC systems and scheme administrator processes that are still bedding in.
Why it is harder across a border
Now run that sequence across two countries.
Your executor may be in another country and another time zone. Identity verification with a UK institution from abroad is slower, sometimes considerably. Certified documents may need to travel. Your beneficiaries may be resident somewhere else again, and your estate may hold assets in several jurisdictions.
Your country of residence has its own succession and inheritance rules, and they do not necessarily align with the UK's. Some tax inherited pensions in their own right. Some tax foreign income received by a beneficiary resident there. Some apply forced heirship rules that constrain who can inherit at all, regardless of what your will says. A double taxation agreement may relieve some of this. It will not always, and it rarely does so automatically.
An administrative tangle that is awkward inside one country becomes a long and costly one when the people involved are spread across the Algarve, Dubai and Sydney. None of this is cause for alarm. It is cause to map it out in advance, which is a thing that can only be done while there is time.
US readers
This page describes UK inheritance tax only. If you are resident in the United States, or a US person, your estate may also be exposed to US federal estate tax, and the two systems interact. The US position is not covered here.
QNUPS and non-UK pension structures
Do not assume that moving retirement assets into a Qualifying Non-UK Pension Scheme, or another non-UK pension wrapper, removes future UK inheritance tax exposure.
The government's consultation material stated that the April 2027 changes were intended to apply equally to UK registered schemes and to QNUPS. Whether any such structure is suitable depends on retirement objectives, tax residence, long-term UK residence, scheme rules, local law and transfer rules, and it is a matter for regulated advice in the relevant jurisdictions. It is not a shortcut, and it should never be treated as one.
Drawdown timing is now an estate question too
Before April 2027, when and how much to draw was mainly an income, investment and pension-tax question.
From April 2027 it also carries estate planning consequences. Drawing funds may reduce the pension value inside your estate, but it can create income tax, investment, gifting, local tax and estate consequences elsewhere. These have to be weighed together rather than in sequence, and the right answer depends entirely on the individual facts.
Nothing here is a suggestion to draw funds. Drawing pension money to reduce an inheritance tax exposure can leave a household worse off overall, and whether it makes sense at all depends on individual circumstances and on the tax rules of the country you live in.
What expats with a UK pension can do now
You do not need decisions today. You need a clear picture, in this order:
Confirm your status. Were you a long-term UK resident, and are you still inside the three to ten year tail?
Establish what is in scope. Which of your benefits are caught, and which are excluded?
Locate every UK pot. Old workplace pensions, personal pensions and SIPPs all count. Our checklist for expat pension holders sets out what to gather. Moving a pot is not, in itself, a route out of the 2027 change: see the section on non-UK pension structures above.
Check your nominations. Out-of-date expression-of-wish forms sit outside your will, and scheme trustees generally take them into account when exercising their discretion.
Identify your personal representatives, and establish whether they are placed to deal with a UK scheme administrator from where they live.
Review it as one cross-border plan. Look at the UK position and your country of residence together, through cross-border retirement planning, a review of your UK pensions and UK inheritance tax planning.
Frequently asked questions
1. Does the 2027 change apply if I am not a UK resident?
Yes. A UK-registered pension is a UK-situated asset, so it remains within UK inheritance tax from 6 April 2027 regardless of your residence.
2. Will my UK pension really be taxed twice?
For deaths after age 75, inheritance tax can apply to the unused fund as part of the estate, and your beneficiaries then pay income tax at their own marginal rate on what they draw from the fund. How the two interact, and whether any relief applies to the overlap, is set out in HMRC's technical note and depends on the beneficiary's own tax position, which for families living abroad is frequently not a UK one. It is worth establishing before it is needed rather than after.
3. Is there anything I can do before April 2027?
Often yes. Reviewing nominations, confirming your residence position and understanding how your pension is held are all best done early, while options remain open.
4. Who is affected most?
British expats with a UK pension and an estate likely to exceed the nil-rate band of £325,000, and any residence nil-rate band that applies, especially those who also own property.
5. What is the nil-rate band, and is it frozen?
The nil-rate band is the amount of an estate that passes free of UK inheritance tax, currently £325,000. A residence nil-rate band of up to £175,000 may also apply where a qualifying residence passes to direct descendants. Both are frozen at their current levels rather than rising with inflation. The residence nil-rate band is withdrawn by £1 for every £2 of net estate above £2m.
6. Does this apply to a SIPP or a personal pension?
Yes. UK-registered pensions, including SIPPs, personal pensions and most workplace schemes, are UK-situated assets and fall within the 2027 changes regardless of where you live.
7. I have already transferred my pension overseas. Am I still affected?
Possibly, and you should not assume that a non-UK pension wrapper solves this. The government's consultation material stated that the April 2027 changes were intended to apply equally to UK registered schemes and to Qualifying Non-UK Pension Schemes. The position varies by scheme, by timing and by your residence history, so it is worth checking your specific arrangement rather than assuming either way.
8. What about money I leave to my spouse or civil partner?
Transfers between spouses and civil partners are generally exempt from UK inheritance tax, and that exemption is expected to apply to pensions under the new rules, with any charge more likely to arise when funds later pass to other beneficiaries. The detail matters and the mechanics are still bedding in, so it is worth confirming for your own circumstances.
9. Will my country of residence tax the pension as well?
Possibly. Some countries tax inherited pensions or foreign income under their own rules, and double-tax treaties do not always remove every overlap. Looking at the UK position and your country of residence together is the only way to see the full picture.
10. Do I have to make any decisions before 6 April 2027?
No. The useful early steps are about clarity rather than commitment: confirming your residence position, locating your pots and checking your beneficiary nominations. These keep your options open without locking anything in.
11. Who pays the inheritance tax on my pension?
Your personal representatives, meaning your executors or administrators, are liable for reporting and paying it for deaths on or after 6 April 2027. HMRC has said that in limited circumstances they may direct the pension scheme administrator to withhold 50% of taxable benefits for up to 15 months from the date of death and pay the tax to HMRC before releasing the balance. That route depends on HMRC systems and scheme administrator processes that are still bedding in, and should not be assumed to be routinely available.
12. Are any pension benefits excluded from the change?
Yes. Death in service benefits payable from a registered pension scheme are excluded, as are dependants' scheme pensions from a defined benefit arrangement or a collective money purchase arrangement. Defined benefit arrangements vary and are worth checking individually rather than assuming either way.
If you live outside the UK and hold a UK pension, it is worth seeing where you stand before the rules change.
Sources
Finance Act 2026 (c. 11), Royal Assent 18 March 2026, Part 2: https://www.legislation.gov.uk/ukpga/2026/11/part/2
HMRC technical note, Inheritance Tax on pensions: https://www.gov.uk/government/publications/inheritance-tax-on-pensions-technical-note/technical-note-inheritance-tax-on-pensions
HMRC policy paper, Inheritance Tax: unused pension funds and death benefits: https://www.gov.uk/government/publications/inheritance-tax-unused-pension-funds-and-death-benefits/inheritance-tax-unused-pension-funds-and-death-benefits
Consultation outcome, liability, reporting and payment: https://www.gov.uk/government/consultations/inheritance-tax-on-pensions-liability-reporting-and-payment/outcome/inheritance-tax-on-pensions-liability-reporting-and-payment-summary-of-responses
The Registered Pension Schemes (Provision of Information) (Miscellaneous Amendments) Regulations 2026, SI 2026/818: https://www.legislation.gov.uk/uksi/2026/818/contents/made
GOV.UK, nil-rate band and residence nil-rate band: https://www.gov.uk/government/publications/inheritance-tax-nil-rate-band-and-residence-nil-rate-bands-from-6-april-2028
Professional Adviser, "Expect 'painful teething challenges' on IHT overpayments, advisers warn", 2 April 2026: https://www.professionaladviser.com/news/4527862/expect-painful-teething-challenges-iht-overpayments-advisers-warn
Disclaimer
This article is for general information and does not constitute financial, tax or legal advice. UK inheritance tax and pension rules are complex, subject to change, and interact with the rules of your country of residence. Seek professional advice appropriate to your circumstances and your country of residence before acting. Paratus Wealth does not offer services to UK residents.
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