Pensions have sat outside the Inheritance Tax net for as long as most property investors have been building a portfolio, which is exactly why the change due on 6 April 2027 catches so many people off guard. Bringing unused pension funds into the estate doesn't just create a new tax bill on the pension itself — for an investor who already holds property, and possibly commercial property inside a SIPP or SSAS, it can push a comfortably sheltered estate over thresholds it was never expected to reach.
What's changing on 6 April 2027
Announced at the Autumn Budget on 30 October 2024 and confirmed following a technical consultation, most unused pension funds and death benefits payable from a registered pension scheme will form part of the deceased's estate for Inheritance Tax purposes from 6 April 2027. That reverses the position that's applied since the 2015 pension freedoms, under which an undrawn pension pot sat entirely outside the estate and could be passed on largely tax-free. The change catches remaining drawdown funds and most lump sum death benefits. Death-in-service benefits paid under a discretionary trust arrangement, and dependants' scheme pensions that continue an income rather than paying a lump sum, are generally expected to stay outside its scope.
Why this lands hardest on property-heavy estates
Property investors typically already hold most of their wealth in a form that's hard to shelter from Inheritance Tax — buy-to-let portfolios, development stock, commercial premises. The pension has historically been the one significant asset class that sat outside the estate altogether, and plenty of investors have deliberately treated it as the last pot to draw down in retirement for exactly that reason. Once the pension sits inside the estate too, that planning assumption reverses. It also interacts with the residence nil-rate band taper: an estate that grows past £2m loses £1 of residence nil-rate band for every £2 over the threshold, a mechanism we've covered in detail in a separate article, so a pension pot large enough to tip a mixed property-and-pension estate over that line can cost considerably more than the headline 40% rate suggests once the taper is added in.
SIPPs and SSASs holding commercial property — a second look
Many property investors already hold commercial premises inside a SIPP or SSAS for the income tax and Capital Gains Tax shelter it gives during their lifetime, a structure we've written about separately in our guide to SIPPs, SSASs and commercial property. That lifetime shelter doesn't disappear. But from April 2027, the value of pension-owned property is pulled into the death estate in exactly the same way as any other uncrystallised or drawdown pension fund, so a building that has grown entirely free of income tax and CGT for decades can generate a substantial Inheritance Tax liability the moment its owner dies, before a penny of it has ever been drawn.
Who actually has to report and pay
Government has confirmed that liability for reporting and paying the Inheritance Tax attributable to pension funds sits with the deceased's personal representatives, not the pension scheme administrator. In practice, that means the same executors already dealing with the rest of the estate now have to gather formal valuations from potentially several different pension schemes and fold them into the estate's Inheritance Tax return, with the usual payment deadlines adjusted to allow for the time it can genuinely take to get those valuations back.
Stacking on top of the tightened Business and Agricultural Property Relief caps
This change doesn't arrive in isolation. From 6 April 2026, the combined 100% relief available on qualifying business and agricultural assets was capped at £1m, with only 50% relief on value above that — reforms we've covered separately for agricultural land and for trading property businesses. For an estate that holds a genuine property trading or development business alongside a meaningful pension pot, the two reforms land in successive tax years and compound on each other rather than sitting as isolated, one-off changes to plan around individually.
What property investors are doing about it
The practical response tends to focus on the order in which pension and other assets are expected to be drawn down in retirement, revisiting wills and letters of wishes so they reflect the new position, and checking how the change sits alongside any existing life assurance or trust arrangements put in place for other reasons. Because decisions about how and when to draw pension benefits are regulated financial advice, this is genuinely a conversation for a regulated financial adviser working alongside your accountant, not something to decide from the tax position alone.
Common questions
Does this mean my whole pension will be taxed at 40% when I die?
Not automatically. From 6 April 2027, most unused pension funds and death benefits are added to the value of your estate, and it's the estate as a whole that's charged to Inheritance Tax at 40% above your available nil-rate bands and reliefs, in the same way as any other asset. Whether tax is actually due, and at what effective rate, depends on the whole estate, not the pension in isolation.
Are death-in-service benefits affected?
Generally not. Lump sum death-in-service benefits paid out under a discretionary trust arrangement, which is how most employer death-in-service life cover is structured, are expected to remain outside the scope of the change, along with dependants' scheme pensions that continue an income to a spouse or dependant rather than paying out a lump sum.
Will my spouse still inherit my pension free of Inheritance Tax?
Yes. Assets passing to a UK-domiciled spouse or civil partner, including pension death benefits caught by the new rules, continue to benefit from spouse exemption, so the change mainly affects what happens when the estate eventually passes to the next generation rather than a transfer between spouses.
Who pays the Inheritance Tax on my pension after I die?
Your personal representatives — the executors or administrators dealing with the rest of your estate — rather than the pension scheme administrator. They'll need to obtain a valuation of your pension benefits from each scheme you held and include it in the estate's Inheritance Tax return alongside your other assets.
Does this affect a SIPP or SSAS that holds a commercial property?
Yes. Commercial property held inside a SIPP or SSAS keeps its income tax and Capital Gains Tax shelter during your lifetime, but from April 2027 its value is included in your pension benefits for Inheritance Tax purposes on death in the same way as any other uncrystallised or drawdown pension fund, which can turn a property that has never been taxed into a significant Inheritance Tax liability for your estate.
Kieran Holsgrove is a Director and Co-Founder of Grafene Accounting, the property tax specialist firm based in Liverpool. He advises property developers, investors and landlords across Merseyside, Greater Manchester, Lancashire and Cheshire on tax structuring, developer VAT, SDLT and the long-view decisions that compound over the life of a portfolio.
This article is general information, not personal tax or legal advice, and the rules referred to can change. Your own position depends on facts we cannot see from here — please take advice before acting on anything above.