Inheritance Tax on Pensions From April 2027: How UK Men Should Rethink Estate Planning Now That SIPPs Are No Longer a Free Pass to Heirs

For twenty years, the standard advice for anyone with a healthy pension and other assets to spare was almost mechanical: spend your ISA and your savings first, leave the pension untouched for as long as possible, and let it pass to your children outside your estate. No inheritance tax, no probate delay, just a clean transfer of wealth to the next generation. That advice is now obsolete. From 6 April 2027, most unused defined contribution pension funds — including SIPPs — will be pulled into the value of your estate for inheritance tax purposes, and the 40% bill that used to stop at the pension's edge will now reach straight into it.

What actually changes on 6 April 2027

Rachel Reeves announced the policy in the Autumn Budget on 30 October 2024, originally slated for April 2026 before HMRC pushed the start date back a year to give pension scheme administrators time to build the reporting infrastructure. The mechanics are straightforward even if the consequences aren't: unused pension funds and most death benefits will be added to the rest of your estate — property, savings, investments, business assets — before the nil-rate band and residence nil-rate band are applied. If the combined total sits above £325,000 (or £500,000 with the residence band, assuming you own a home and leave it to direct descendants), everything above that line is taxed at 40%.

There are carve-outs. Dependants' scheme pensions — the income a spouse or dependent child continues to receive from certain defined benefit arrangements — stay outside the charge, and so do most death-in-service lump sums paid from group life policies your employer runs alongside the pension. But the bulk of what sits in a SIPP, a personal pension, or a workplace defined contribution scheme is now squarely in scope. If you've been quietly building a drawdown pot specifically because it sat outside your estate, that reason for holding it is gone.

The double-taxation trap nobody explains properly

Here's the part that catches people out even when they know the headline change. If you die after age 75, whoever inherits your pension still pays income tax on withdrawals at their own marginal rate — that rule hasn't moved. Combine that with the new IHT charge and a higher-rate taxpayer beneficiary could lose a large chunk of an inherited pension to two separate taxes on the same money: 40% inheritance tax off the top, then up to 45% income tax on what's left as they draw it down. Model it on a £400,000 pension pot left to a 45%-rate-taxpayer son: after IHT and income tax, in the worst-case sequencing, less than a third can end up in his pocket. That's not a rounding error in your financial plan — it's the difference between leaving a house deposit and leaving a modest top-up.

Die before 75 and the income tax side is more forgiving — beneficiaries can usually draw the inherited pension tax-free up to the lump sum and death benefit allowance, currently £1,073,100 — but the IHT charge applies regardless of the age at which you die. Age at death no longer determines whether pensions get taxed on the way out; it only determines which tax hits your beneficiaries alongside the 40%.

Why this hits more men than the headline suggests

The nil-rate band has been frozen at £325,000 since 2009 and is set to stay frozen until at least 2030. House prices in the South East alone have made the residence nil-rate band tighter than it looks on paper, and a pension pot that would have comfortably sat outside the estate is now the single largest asset pushing many estates over the threshold. You don't need to be wealthy in the way that word usually implies. A £280,000 house, a £150,000 SIPP built over a 25-year career, and a modest ISA is enough to trigger a six-figure IHT bill under the new rules where none existed before — and that's before anyone's touched a business asset, a buy-to-let, or a second property.

Not every estate is affected, and it's worth being honest about that rather than manufacturing urgency where none exists. If your pension and other assets combined sit comfortably under £500,000, or if everything passes to a spouse or civil partner — which remains fully IHT-exempt regardless of size — none of this changes your position. The people who need to act are the ones with pensions above roughly £150,000–£200,000 sitting alongside a paid-off or nearly paid-off house, aiming to leave assets to children rather than a spouse.

The maths on a fairly ordinary estate

Take a man who dies in 2028 leaving a £320,000 house with no mortgage, a £180,000 SIPP, and £60,000 across ISAs and savings — a total estate of £560,000, left entirely to two adult children. Under the pre-2027 rules, only the house and the ISAs counted: £380,000 against a combined nil-rate and residence nil-rate band of £500,000, so no inheritance tax at all. Under the new rules, the SIPP joins the total, pushing the estate to £560,000 — £60,000 over the threshold, taxed at 40%, for a £24,000 bill split between two children who between them inherited a pension that used to arrive intact. Push the SIPP up to £300,000, which isn't an unusual pot for a man who's contributed steadily for thirty years and let it grow, and the bill on the same house and savings climbs past £64,000. None of the underlying assets changed value overnight — the house is still worth what it was worth, the SIPP still grew the way it was always going to grow. What changed is which parts of that estate HMRC is now allowed to count, and that single change in scope is what turns a family with no inheritance tax problem into one writing a five-figure cheque.

Should you actually keep contributing as much?

The instinct, once you've seen numbers like that, is to ease off pension contributions and redirect the money into an ISA instead, on the theory that at least the ISA won't get hit twice. Resist that instinct in most cases. The pension still gives you tax relief going in — 20%, 40%, or 45% depending on your band — plus tax-free growth for decades, and none of that changes. An ISA never had inheritance tax protection to begin with, so moving money there doesn't dodge anything; it just gives up the upfront relief for no IHT benefit at all, since both pots are now equally exposed at death. The one group who should genuinely reconsider is men already sitting on a pension pot well past what they'll plausibly spend in retirement, contributing purely as a legacy vehicle for the old IHT-free reason — for them, redirecting surplus contributions toward gifting, a spousal transfer, or a trust-based structure now makes more sense than adding another pound to a pot that will be taxed on the way out regardless. Everyone else should keep contributing at least up to the employer match and their planned retirement income, because the alternative — paying more income tax now to save less overall — solves a problem you don't have yet at the cost of one you definitely do.

Trusts are worth a mention and a caution in the same breath. A discretionary trust funded during your lifetime can still move assets outside your estate, but HMRC tightened the rules on pension-funded "bypass trusts" years ago specifically to stop this kind of planning, and the 2027 changes were partly designed to close what was left of that gap. Don't assume a trust structure that worked for your father's generation still works for yours — get it checked against the current rules by a chartered financial planner before you rely on it, not after.

What to actually do before April 2027

The old advice — spend other assets first, preserve the pension — now runs backwards. For most men in the affected bracket, the more tax-efficient sequence in retirement is to draw down the pension earlier and let ISAs and other assets, which were never IHT-exempt anyway, carry more of the later spending. You're not avoiding tax by doing this; you're choosing which tax you pay, and drawing your own pension at your own marginal rate while alive is very often cheaper than your estate paying 40% and your heir paying income tax on top.

Gifting matters more now than it did. Regular gifts out of surplus income are immediately outside your estate with no seven-year wait, provided they come from income rather than capital and don't reduce your standard of living — and that exemption is under-used precisely because pensions used to make it feel unnecessary. Larger one-off gifts still need the full seven years to fall outside your estate entirely, tapering relief applying from year three, so the earlier you start, the more of your estate you move out of reach of the 2027 rules before they bite.

Life insurance written in trust is the blunt instrument worth considering if you'd rather not restructure decades of pension planning: a term policy sized to cover the projected IHT bill, paid out directly to beneficiaries outside the estate, settles the tax without forcing anyone to sell the house or raid the pension in a hurry. It costs a monthly premium instead of a portfolio rebuild, which for some men is the more honest trade given how little they actually want to touch their retirement plan before they have to.

Check your expression of wish forms now, not later

One thing that costs nothing and takes fifteen minutes: pull up your pension provider's expression of wish nomination and check it still reflects who you actually want to inherit, and in what proportion. Scheme administrators will be the ones reporting and, in some cases, collecting the IHT liability from April 2027, and an outdated nomination form creates exactly the kind of administrative delay that turns a tax problem into a family dispute. If you haven't reviewed it since you last changed jobs, assume it's wrong.

The policy could still shift again

Worth saying plainly: this isn't necessarily the final word. The original April 2026 date was pushed back a year after sustained pressure from pension providers and professional bodies over the reporting mechanism, and the consultation response has already softened some of the original draft — dependants' scheme pensions were added to the exemption list partway through, for instance. Nobody sensible bets a financial plan on a further delay, but nobody sensible treats the current draft as untouchable either. Build your plan around the rules as they stand, and revisit it if the detail moves before 2027 actually arrives.

None of this means abandoning the pension as your main retirement vehicle — the tax relief on the way in, and the flexibility of drawdown, are still better than almost anything else available to you. It means retiring the assumption that whatever's left in it when you die will reach your children untouched. Treat the SIPP as what it now is: still the most efficient way to save for your own retirement, no longer the cleanest way to hand money to the next one.