New pension inheritance rules: what does it mean for estate and tax planning

You’ve written a will, established a trust and agreed a drawdown strategy. Lifetime estate planning can be ticked off your to do list, right?

Legislative changes and market shifts mean that lifetime estate planning will never be a tick in the box activity. It needs to be revisited regularly especially when tax rules change – and there’s a big change on the horizon.

Pensions no longer exempt from inheritance tax

From 6 April 2027, the majority of pensions will be subject to inheritance tax. This means any unused funds, death benefits and even lump sum payments into a by-pass trust will be subject to inheritance tax unless they are left to a spouse or civil partner.

If beneficiaries include your children or other loved ones, then the new law could decrease their inheritance by thousands of pounds.

The change will impact anyone who has an estate worth more than the inheritance tax threshold, which, as of July 2025, was £325,000 or £500,000 depending on who inherits your property. Your estate will not normally be liable for inheritance tax if you leave everything above the £325,000 threshold to your spouse, civil partner or a charity.

Rethinking your drawdown strategy

Until now, private pensions were often seen as a tax-efficient way to not only fund retirement plans but also to share wealth with loved ones – especially children and grandchildren – via inheritance.

The new law changes this – and that means your estate planning and drawdown strategies might need to change too. For example, to maximise the tax benefits, you might have been advised to leave your pension untouched for as long as possible – even after reaching state retirement age.

This might no longer be the best strategy and could result in your money going to the authorities instead of your beneficiaries after your death.

Plan today, profit tomorrow

Although the government has confirmed the change, HMRC has yet to publish detailed implementation guidance. This doesn’t mean you can’t start planning for the new law. Some estate strategies, such as lifetime gifting, are more effective when started early. For example, no tax is payable on any gifts you give if you live for another seven years.

Lifetime estate planning is very complex. It’s important to seek independent financial and legal advice before making any decisions or changes. Involving beneficiaries in your planning can also help to minimise your liabilities and maximise the value of your estate.   Attwaters lifetime planning team has been supporting clients and their families for more than 100 years. From trusts and gifts to wills and probates, we can help you and your loved ones navigate the complex landscape of estate and tax planning. Get in touch with one of our team today to find out how we can support you.