A guide to the inheritance tax changes expected from April 2027

Understanding how upcoming inheritance tax changes could affect your estate and what planning steps may be worth considering now.

Inheritance tax has long been an area of concern for families seeking to pass wealth efficiently to the next generation. However, inheritance tax changes expected from April 2027 may significantly widen its impact.

Frozen tax thresholds, rising property values and the potential inclusion of pension wealth within the inheritance tax framework could bring many more estates into scope. For some families, this may create what commentators have described as a “double inheritance tax effect”, where both property and pension wealth become taxable within the same estate.

Understanding how inheritance tax works today and how the rules may change provides valuable time to plan carefully. Rather than making reactive decisions later, early planning allows strategies to be implemented gradually and with greater control.

Download our detailed guide to the 2027 inheritance tax changes

If you would like a clearer explanation of the proposed rule changes and the planning strategies that may help protect your estate, download our full inheritance tax guide.

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Key points: Inheritance tax changes from April 2027

• Unused pension funds may be included in the taxable estate from April 2027
• Frozen tax thresholds mean more estates are gradually becoming liable for inheritance tax
• The current nil-rate band remains £325,000 per individual
• Married couples may still pass up to £1 million tax-free if allowances apply fully
• Early estate planning may help reduce long-term inheritance tax exposure

How the current inheritance tax system works

Inheritance tax is generally charged at 40% on the value of an estate above the available tax-free allowances.

At present, the main allowances include:

• A £325,000 nil-rate band per individual
• An additional £175,000 residence nil-rate band when a main home is passed to a direct descendant, such as a child or grandchild

When these allowances are combined for married couples or civil partners, it may be possible to pass up to £1 million free of inheritance tax, provided the estate qualifies fully.

However, these thresholds have remained frozen for several years and are expected to stay at their current levels for the foreseeable future. As property prices and investment values rise, more estates are gradually being drawn into the inheritance tax net despite no real change in underlying wealth.

The £2 million taper and the residence nil-rate band

A further complication arises for estates valued above £2 million.

For every £2 that an estate exceeds this threshold, £1 of the residence nil-rate band is lost. This tapering mechanism can significantly reduce the amount of tax-free allowance available.

In practice, an estate valued at around £2.35 million would lose the residence nil-rate band entirely, removing up to £350,000 of combined allowance for a couple.

As property prices continue to rise and investment portfolios grow over time, more families are finding themselves unexpectedly close to this taper threshold. Consequently, even a modest increase in asset values can lead to a disproportionately higher inheritance tax liability.

How pensions may be affected by inheritance tax from 2027

One of the most significant proposed inheritance tax changes in 2027 involves the treatment of pension wealth.

Historically, unused pension funds have generally been excluded from the inheritance tax calculation, making pensions an efficient way to pass wealth between generations. However, proposals suggest that unused pension funds could be included within the taxable estate from April 2027. If implemented, this would represent a substantial shift in estate planning strategy.

In some cases, this could create a layered tax outcome. Pension assets may first be included in the estate for inheritance tax purposes and, depending on the beneficiary’s circumstances and the timing of withdrawals, income tax could also apply when funds are accessed.

As a result, pensions may no longer serve the same role in long-term estate planning that they once did.

For individuals with substantial pension savings, reviewing beneficiary structures and withdrawal strategies ahead of 2027 may therefore become increasingly important.

Why more estates may face inheritance tax in the future

Several factors are combining to increase the number of estates exposed to inheritance tax.

First, tax thresholds have remained unchanged for many years. At the same time, property values and investment portfolios have continued to grow.

Secondly, pensions have historically been treated separately from the estate for inheritance tax purposes. If pension wealth becomes taxable from 2027, the total value of many estates will increase significantly.

For many households, the family home represents the largest single asset. Continued house price appreciation alone can therefore push estates closer to key thresholds, even when no deliberate wealth expansion has taken place.

As a result, individuals who once considered inheritance tax a distant concern may find it becoming increasingly relevant.

Who is most likely to be affected by the 2027 changes

While inheritance tax has traditionally been associated with very high levels of wealth, the proposed changes may affect a broader group of households.

Those most likely to feel the impact include:

• Individuals with large pension savings
• Homeowners in regions with strong property price growth
• Families whose estates are approaching the £2 million taper threshold
• Individuals holding both significant property wealth and pension assets

In many cases, estates may cross inheritance tax thresholds simply due to long-term asset growth rather than intentional wealth accumulation.

For that reason, reviewing estate structures early can help identify potential risks before they become more difficult to manage.

Inheritance tax planning strategies to consider before 2027

Although the potential tax exposure may appear significant, a number of established planning strategies can help manage inheritance tax liability when implemented carefully and over time.

Professional advice is often essential to ensure that these strategies align with both legislation and personal financial circumstances.

Lifetime gifting strategies

One commonly used approach involves making gifts during your lifetime.

Under current rules, gifts made more than seven years before death are generally exempt from inheritance tax, provided certain conditions are met.

Over time, structured gifting programmes can gradually reduce the taxable estate while allowing wealth to benefit family members earlier.

Regular gifts made from surplus income may also fall outside the estate immediately if they meet specific criteria.

However, the key consideration is to ensure that any gifting strategy does not compromise your financial security.

Trust planning

Trust structures can allow assets to be transferred while maintaining a degree of control over how and when beneficiaries receive them.

Depending on the structure chosen, trusts may help manage inheritance tax exposure while also providing asset protection across generations.

Trusts operate within their own tax framework and may involve entry charges or periodic reviews. As a result, professional guidance is essential when considering whether a trust structure is appropriate.

Reviewing pension structures and beneficiaries

In light of the proposed inheritance tax changes in 2027, reviewing pension nominations and withdrawal strategies may become particularly important.

For some individuals, it may be appropriate to draw pension income earlier and redeploy funds into alternative tax-efficient structures such as ISAs. Others may prefer to maintain pension funds, but review how beneficiary arrangements are structured.

Updating expressions of wish forms also helps ensure pension benefits are directed according to current intentions.

Even before any legislative change, clear beneficiary planning remains an important part of effective estate management.

Business and agricultural relief considerations

Certain assets may qualify for business relief or agricultural relief, which can reduce or eliminate inheritance tax exposure on qualifying assets.

Maintaining the appropriate ownership structures and meeting qualifying conditions is essential to preserve these reliefs.

Regular review is particularly important where business valuations fluctuate or succession planning is underway.

Whole-of-life insurance as a liquidity solution

In some situations, the objective is not necessarily to remove inheritance tax liability but to ensure that funds are available to pay it.

Whole-of-life insurance policies written in trust can provide a lump sum on death specifically to cover a projected inheritance tax bill.

This can prevent estate assets from needing to be sold quickly and may provide greater certainty for beneficiaries.

Frequently asked questions about inheritance tax changes

Will pensions definitely be subject to inheritance tax in 2027?

Proposals suggest that unused pension funds could be included within the inheritance tax framework from April 2027. However, the exact legislative structure may evolve before implementation.

How much inheritance tax can a couple pass on tax-free?

Currently, married couples or civil partners may combine allowances, allowing up to £1 million to be passed free of inheritance tax where the estate qualifies.

What happens if an estate exceeds £2 million?

Estates exceeding £2 million may see the residence nil-rate band gradually reduced through a tapering mechanism, potentially increasing the inheritance tax liability.

Why early inheritance tax planning matters

Inheritance tax planning is typically most effective when it takes place gradually over many years.

Attempting to restructure an estate shortly before death rarely yields optimal outcomes and may limit the available planning options.

With potential changes approaching in 2027, reviewing pension arrangements, property values and overall estate composition now allows sufficient time to implement appropriate strategies.

Importantly, estate planning is not solely about reducing tax. It is about ensuring wealth passes to the people you care about in a structured, efficient and considered way.

How DG Financial can help

At DG Financial, estate planning forms part of a coordinated long-term financial strategy.

We help clients assess how upcoming inheritance tax changes in 2027 may affect their estate, review pension structures ahead of potential legislative change and develop planning strategies designed to protect family wealth across generations.

By combining estate planning with retirement, investment and tax planning, decisions can be made within the context of a wider financial strategy.

THIS DOES NOT CONSTITUTE TAX, LEGAL OR FINANCIAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON EACH CLIENT’S INDIVIDUAL CIRCUMSTANCES AND MAY CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.