For years, UK residents and British expats have been able to pass UK-based pension savings to beneficiaries free of Inheritance Tax (IHT).
But that’s all set to change.
89% of UK adults have little or no awareness of the upcoming Inheritance Tax rule changes
Many British expats assume that once they move overseas, UK IHT is no longer something they need to think about. Sadly, it’s not quite that simple.
And in more worrying news, FTAdviser recently reported that the majority of UK adults (almost 90%!) have almost no awareness of the upcoming changes to how IHT treatment may affect their pension savings.
If you’re living overseas, there’s a strong chance that the planned reforms have escaped your notice.
How UK Inheritance Tax affects British expats
Since April 2025, parts of the IHT system have moved towards a residency-based test, which determines whether someone is classified as a Long-Term Resident (LTR) or Non-Long-Term Resident (Non-LTR) for IHT purposes.
While the new residency-based framework for IHT is generally far clearer than the previous domicile system, there are some important nuances.
For example, UK IHT can still apply to UK-situated assets, even if you are classified as a Non-LTR.
To gain greater clarity on how rules apply to you, please get in touch.
From 6 April 2027, unused pension funds will come into scope for Inheritance Tax
The standard rate of IHT in the UK is 40%, and applies to any portion of an estate that exceeds certain thresholds.
As per the residence rules mentioned above, if you were a long-term UK resident before leaving, depending on how long you lived in the UK, your estate could remain exposed to UK IHT on all worldwide assets for between 3 and 10 years after your departure.
If you have a UK-registered pension, including a SIPP (self-invested personal pension) or personal pension, it will be treated as a UK asset and will be subject to a potential UK IHT charge, regardless of where you live or how long you’ve been residing outside the UK.
In addition to IHT, if you die after age 75, your beneficiaries may also be liable to Income Tax on pension funds they receive, resulting in potentially costly double taxation.
Not all pensions will be affected
Depending on the type of pension you have, you may skirt this rule change.
If you’re a member of a final salary or defined benefit scheme, the rules don’t apply.
Likewise, death in service benefits from employer Group Life schemes are also exempt.
Plus, transferring your pension to a surviving spouse or civil partner won’t trigger an IHT charge.
A UK pension on top of property could easily tip your estate over the IHT threshold
Including your UK pension wealth when calculating IHT could tip your estate over the nil-rate band thresholds – which are currently frozen until April 2031.
Although HMRC has stated that the change is likely to affect only a relatively small number of estates and “more than 90% of estates each year will continue to pay no Inheritance Tax” following the changes, you’d be wise to consider if your pension savings could impact the amount of IHT that may be applied to your estate.
Knowing the score early could allow you enough time to adjust your plans and take steps to lessen the effect of IHT on your family, beneficiaries, and executors.
Complex probate in a single country is one thing. Add multiple jurisdictions to the mix, and the administrative burden could take a long time to untangle and prove far more costly than anyone would like.
Getting on top of your estate planning sooner could save you $$$
Research carried out in June 2026 found that delaying estate planning could cost the wealthiest families with UK assets roughly £12.3 billion (S$21.05 billion) in preventable IHT.
In short, families who begin estate planning at age 50 – and make use of all available exemptions and reliefs – could pass an average of £397,000 (S$679,824) more to their loved ones than those who delay starting until age 70.
Even before the 2027 pension rule change, the same shift in timing would help those families pass on an average of £258,000 (S$441,730).
The clock is ticking
With the IHT reforms due to come into force in less than nine months, now’s a great time to review your financial plan and ensure you’re well positioned to make the most of your wealth – both now and in the future.
If you’re unsure how the rules may affect you, please get in touch – we’re always happy to talk.
