The Clock Is Ticking: UK Pensions and the 2027 Inheritance Tax Deadline

February 2026

By Will Glyn

For years, one of the most effective ways British expats could pass on wealth to their families was through their pension. Unlike most other assets, unused defined contribution pension pots — including SIPPs — sat entirely outside the scope of UK inheritance tax. Whatever was left in the pot when you died could pass to your beneficiaries without HMRC taking a cut.

That is about to change.

In the 2024 Autumn Budget, the government announced that from 6 April 2027, unused pension funds will be included in your estate for inheritance tax purposes. It's one of the most significant changes to pension planning in a generation, and for British expats with substantial UK pension savings, the implications are considerable.

What is actually changing?

At the moment, when you die with money remaining in a defined contribution pension, your chosen beneficiaries receive those funds outside the inheritance tax calculation. From April 2027, that changes. The remaining pension pot will be added to the value of your estate, and anything above your available nil-rate band will be taxed at the standard 40% rate.

It's worth noting that defined benefit (final salary) pensions are not affected by these changes. The reforms apply to defined contribution pensions — including SIPPs and most modern workplace schemes — where you have a pot of money invested rather than a guaranteed income.

What are the current thresholds?

The standard nil-rate band currently sits at £325,000 per individual. If you're leaving your main home to direct descendants, an additional residence nil-rate band of up to £175,000 may apply, bringing your personal threshold to £500,000. Married couples and civil partners can combine their allowances, giving a potential joint threshold of £1,000,000.

Both allowances are frozen until at least 2030. So as asset values rise, more estates will tip over the threshold — and adding pension pots into the calculation from 2027 will push many more families into inheritance tax territory.

Why does this hit expats particularly hard?

If you're a British expat living abroad, you might assume these changes don't apply to you. Unfortunately, they do. Your UK pension — whether a SIPP or another defined contribution scheme — is a UK-situs asset. Regardless of where in the world you live, it falls within the UK inheritance tax framework.

This sits alongside the residence-based IHT reforms that came into effect in April 2025. If you were UK-resident for 10 or more of the last 20 years, you're classified as a long-term UK resident, and your worldwide estate — not just your UK assets — may remain subject to IHT for a tail period of up to 10 years after you leave. Your pension gets caught in both nets.

A worked example

Take Sarah, a British expat living in the Netherlands. She's 68, widowed, and has inherited the full nil-rate bands from her late husband. She has a SIPP worth £700,000 and other UK assets — savings and investments — worth £600,000.

Under current rules, only her £600,000 in other assets is assessed for inheritance tax. With a combined nil-rate band of £1,000,000, no tax is due at all. Her SIPP passes to her children entirely free of inheritance tax.

From April 2027, her SIPP is added to her estate. The total is now £1,300,000. After applying her £1,000,000 threshold, £300,000 is taxable — generating an inheritance tax bill of £120,000.

And that assumes the SIPP doesn't continue to grow in the meantime. For many of the expat clients we work with, pension pots are considerably larger than this. The numbers can escalate very quickly.

What can you do about it?

The good news is that there is still time to plan — but not as much as it might seem, because structuring pensions and estates takes time. Here are some of the options worth considering:

• Draw down your pension more actively. Rather than leaving the pot untouched and drawing income from other assets, it may make sense to take more income from the pension itself, reducing its value over time.
• Use lifetime gifting. Taking pension income and gifting it to children or grandchildren can reduce the overall size of your estate, subject to the seven-year gifting rule.
• Explore a QROPS transfer. A Qualifying Recognised Overseas Pension Scheme can move your pension assets outside the UK inheritance tax framework entirely. It isn't right for everyone, but for expats who are settled overseas long-term, it's worth examining carefully.
• Update your expression of wishes. Pension funds don't pass through your will — they're paid at the discretion of your pension trustees. Keeping your nominated beneficiaries up to date is essential.
• Consider a trust. Trusts can play a role in managing the transfer of wealth across borders, though the rules are complex and have tightened in recent years.

One important caveat: while the legislation has been announced, some of the finer detail of how the new rules will work in practice is still being finalised. That makes taking advice sooner rather than later even more valuable — you want to understand your position before the goalposts stop moving.

Don't leave it too late!

Obtaining an NT (Non-Taxable) code from HMRC alone can take several months. If a QROPS transfer is appropriate, the paperwork and processing time should not be underestimated. Starting now gives you the most options.

For British expats, the next 12 to 24 months represent the most important pension and estate planning window in a generation. Getting on top of this now could save your family a very significant sum.

How We Can Help

At Proctor Wealth Associates, we work with British expats on pensions, QROPS, estate planning, and trust services. We can help you understand exactly how the 2027 changes affect your position and identify the right approach for your circumstances. Specifically, we can help you:

• Review your SIPP or defined contribution pension and model the inheritance tax impact
• Assess whether a QROPS transfer makes sense for your situation
• Build a drawdown and gifting strategy that reduces your estate efficiently
• Coordinate pension planning with your wider estate structure

If you'd like to go through your options, book a call with me and we can look at the best approach for your situation.

Will is an Independent Financial Adviser with over a decade of experience helping expats make the most of their international status.