What the April 2027 pension change means for your family
There's a big change to inheritance tax coming, and it could affect a lot more families than people realise. From 6 April 2027, most unused pension savings will start to count as part of your estate when you die. Here's what that means in plain English, and why it makes life insurance worth a fresh look.
What's actually changing
Until now, money left in most pension pots has usually sat outside your estate, which meant it could be passed on without an inheritance tax bill. From April 2027 that changes: unused pension funds and most pension death benefits will be counted alongside the rest of your estate for inheritance tax purposes.
Inheritance tax is charged at 40% on anything above your tax-free allowance. The standard allowance (the "nil-rate band") is £325,000, and it's frozen at that level until April 2030.
Who is most likely to feel it
The people most affected tend to be those whose wealth is tied up in things that are hard to sell quickly, especially a family home, plus a pension they never fully spent. When the pension is added to the value of the house, an estate that used to sit under the threshold can suddenly go over it.
Where life insurance comes in
Here's the useful part. If your family faces an inheritance tax bill, they normally have to find the cash to pay it, sometimes before they can even access the rest of the estate. That can mean selling the family home in a hurry.
A life insurance policy that is written in trust pays out to your loved ones directly, outside your estate, so it isn't taxed itself. That money can then be used to cover the inheritance tax bill, without anyone being forced into a quick sale.
What you can do now
You don't need to panic, but it's worth understanding roughly what your estate is worth once your home and pension are counted together. If it's near or over the threshold, that's a good prompt to speak to an independent financial adviser about whether life cover held in trust could help. Our simple guide to writing a policy in trust explains how that works.
Information only. This is general information, not financial, tax or legal advice, and not a personal recommendation. Tax rules depend on your circumstances and can change. Please speak to a qualified, FCA-regulated adviser or a solicitor before acting.