UK Pensions and Inheritance Tax Changes in 2027: What Expats Need to Know

The UK’s approach to inheritance tax (IHT) has long shaped how individuals structure their wealth, particularly when it comes to pensions. For many years, pensions have been viewed as a relatively efficient way to pass on wealth, often sitting outside of an individual’s estate for IHT purposes.

However, proposed changes expected from April 2027 could significantly alter this position, and for UK expats, the implications may be even more complex.

Understanding what is changing, and how it may affect cross-border financial planning, is becoming increasingly important.

Why pensions have played a key role in estate planning

Traditionally, UK pensions have offered two distinct advantages:

• They sit outside of the estate for IHT purposes in many cases
• They allow funds to be passed to beneficiaries, often in a tax-efficient way

This has led many individuals to prioritise pension preservation, drawing on other assets first in retirement while allowing pension funds to grow and be passed on.

For internationally mobile individuals, this approach has often formed part of a broader cross-border wealth strategy.

What is changing from 2027?

While full legislation is still subject to confirmation, current proposals suggest that unused pension funds and certain death benefits may be brought within the scope of inheritance tax.

If implemented, this could represent a fundamental shift in how pensions are treated within estate planning.

For some individuals, this may reduce the relative advantage of retaining large pension balances purely for intergenerational transfer purposes.

However, it is important to avoid reacting prematurely. The detail of how these rules will be applied, and any available planning opportunities will ultimately determine their real-world impact.

Why this matters more for expats

For UK residents, changes to IHT rules are already significant. For expats, the situation can be more nuanced.

Your exposure to UK inheritance tax may depend on factors such as:

• Domicile status
• Length of time spent outside the UK
• Location of assets
• Residency status in another jurisdiction

At the same time, your country of residence may have its own inheritance or succession taxes, which could apply alongside, or instead of UK rules.

This creates a layered situation where:

• UK tax rules may still apply
• Local tax rules may also apply
• Double taxation agreements may influence outcomes

As a result, changes to UK pension treatment do not exist in isolation — they interact with a broader cross-border framework.

Reconsidering pension strategy

If pensions become subject to inheritance tax, individuals may wish to review how they use pension assets within their overall financial plan.

That does not mean pensions lose their value, far from it. They remain a key component of retirement planning.

However, the balance between using pension funds during lifetime and preserving them for legacy purposes may need to be reassessed.

Some considerations may include:

• The timing and structure of withdrawals
• How pension benefits are nominated to beneficiaries
• The role of other assets in estate planning
• The interaction with local tax regimes

Each of these factors will vary depending on personal circumstances.

The importance of beneficiary nominations

One area that remains particularly important is ensuring that beneficiary nominations are up to date and aligned with your wishes.

Even under current rules, how pension death benefits are distributed can depend heavily on nomination forms and provider discretion.

Changes to tax treatment may increase the importance of reviewing these arrangements regularly, particularly where family circumstances or residency status has changed.

Cross-border estate planning considerations

For expats, estate planning is rarely confined to a single jurisdiction.

Key areas to review may include:

• Whether you have wills in multiple jurisdictions and whether they align
• How different countries treat pension assets on death
• Whether forced heirship rules apply (as in parts of Europe)
• How currency and asset location may affect distribution

Without coordination, there is a risk of:

• Conflicting instructions
• Delays in probate or administration
• Unexpected tax liabilities

Taking a joined-up approach may help reduce these risks.

Avoiding reactive decisions

With any proposed legislative change, there can be a temptation to act quickly. However, where rules are still evolving, a measured approach is often more appropriate.

Rather than making immediate changes based on incomplete information, it may be more beneficial to:

• Stay informed as legislation develops
• Review your current arrangements
• Identify areas that may require future adjustment

This allows for flexibility while avoiding unnecessary disruption.

Long-term planning in a changing environment

The broader message is not that pensions are becoming less relevant but that the environment in which they operate is changing.

For internationally mobile individuals, this reinforces the importance of long-term, adaptable planning that takes account of:

• Multiple tax systems
• Changing legislation
• Evolving personal circumstances

Regular reviews may help to keep your strategy  aligned with both your goals and the regulatory landscape.

Final thoughts

Proposed changes to UK inheritance tax treatment of pensions represent a potential shift in how wealth is structured and passed on.

For expats, the interaction between UK rules and overseas tax systems adds an additional layer of complexity.

Understanding these changes early allows for informed, considered planning — rather than reactive decision-making.

As always, the most appropriate course of action will depend on your individual circumstances, residency status, and long-term objectives.

This communication is for informational purposes only based on our understanding of current legislation and practices which are subject to change and are not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. Investing involves risk. The value of investments can go down as well as up, and you may not get back the amount originally invested. Past performance is not a reliable indicator of future results. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.