Recent research by Schroders Personal Wealth found that over half (51%) of UK adults say they are unaware of major upcoming pension and tax policy changes that could reshape retirement and inheritance planning.
That lack of awareness could have far-reaching financial consequences, particularly with the UK’s transition from a domicile-based to a residency-based inheritance tax regime and new rules on pension death benefits.
This article summarises the key developments, explains why they matter, and outlines what can be done to prepare.
From 6 April 2027, most unused pension funds and many pension death benefits will be brought within an individual’s estate for Inheritance Tax (IHT) purposes.
Currently, pensions usually sit outside the IHT net, one of their most attractive features for long-term savers. Under the new rules, any unspent pension funds may now be subject to up to 40 % IHT (above the nil-rate threshold).
The latest consultations have refined the approach:
It’s important to be aware of the potential for double taxation. Where death occurs after age 75, the beneficiary’s withdrawal from the inherited pension will continue to be taxed at their marginal rate of income tax, in addition to the IHT charge on the value of the fund. The result could be a combined effective tax rate exceeding 60%, depending on the beneficiary’s income level and estate composition.
While finer details are still being finalised, this marks a fundamental shift in how pensions interact with the tax system, particularly for intergenerational planning.
The 2024 Budget introduced a major reform that took effect in April 2025: the abolition of the long-standing domicile concept in UK tax law, replaced by a residency-based test. This reform reshapes how individuals are assessed for income tax, capital gains tax, and inheritance tax. Under the new regime:
For expatriates, returning Britons, or those with overseas assets or pensions, this is a fundamental change that makes cross-border planning more important than ever.
These two shifts (IHT on pensions and residency-based taxation) combine to make cross-border estate and pension planning much more complicated.
For example:
This is a major issue for professionals, expatriates, and international families. Without careful coordination, these new rules could lead to double taxation, administrative delays, and unexpected liabilities.
The nil-rate band (£325,000) and residence nil-rate band (£175,000) remain frozen until 2030, meaning more estates will drift into taxable territory.
As of April 2025, HMRC introduced a new system for allocating tax codes to individuals starting to draw private pensions. The reform aims to ensure that new pension recipients are placed on the correct cumulative tax code more quickly, helping to reduce the over- or under-payment of income tax that previously affected many retirees in their first year of drawdown.
Being unaware of these changes can have real-world consequences:
1. Unexpected IHT bills for beneficiaries or executors.
2. Distorted financial planning, as outdated “pensions-are-IHT-free” assumptions persist.
3. Cross-border mismatches, with double taxation or loss of treaty relief.
4. Reduced flexibility, as many of the most effective planning routes, such as certain trust or pre-migration structures, have now closed under the new residency-based rules.
5. Added administrative burdens, particularly where executors are responsible for tax reporting on pension benefits.
Review your residency and estate exposure. If you’ve lived abroad or plan to, take the time to map out how the new rules could affect you. Revisit your pension beneficiary nominations and make sure all documentation reflects your current wishes. If you hold assets or have family members overseas, seek dual-qualified advice to ensure your arrangements remain efficient across jurisdictions. It may also be worth considering whether accelerating withdrawals or restructuring before 2027 aligns with your wider goals. Finally, keep an eye on government updates, as secondary legislation and HMRC guidance will determine the final shape of these changes.
The UK pension and inheritance landscape is changing faster, and more fundamentally, than most people realise. With pension death benefits likely to fall under IHT, and residency replacing domicile as the basis of liability, the next two years represent a critical window for review and adjustment.
Awareness and sound financial advice have never mattered more. Those who take time to understand and adapt to these new rules will be far better positioned to protect both their retirement income and the legacy they leave behind.
If you’d like to review how these changes could affect your own plans, get in touch today and we can discuss this and any other questions or concerns you have regarding your pensions.
Carla has spent the last 15 years helping expatriates to manage their finances effectively, and has been learning, to some extent first hand, of some of the challenges faced when living abroad. In particular, she has extensive knowledge of the interplay between the UK, French and Swiss systems, having lived and worked in each of these countries. Carla has built her reputation as a trustworthy adviser to individuals looking to plan for their futures, and her high level of client retention is a testament to this.
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