The changes, explained in under 3 minutes
Molly runs through what’s changing from April 2027, and what it could mean for the people who inherit your pension.
For readers in a rush
- What’s changing: From 6 April 2027, unused pension pots will be included in your estate for inheritance tax.
- What it could mean: If your estate, including your pension, comes to more than your tax free thresholds, the people who inherit could face a 40% tax bill on what’s left of your retirement savings.
- Why now: You’ve got until April 2027 to review your beneficiaries and your plans under the current, more generous rules.
Transfer your old pensions and get up to £500 to spend
Bring your other pensions together with us and we’ll say thank you with a gift voucher, from £50 up to £500 depending on how much you transfer. Existing customers only, apply by 30 October 2026. Terms apply.
When do the changes happen?
For decades, the rule of thumb was simple. Your pension sat outside your estate, so you could pass a substantial pot to the people you love without the taxman taking a slice. That made pensions one of the most effective ways to pass on wealth.
The change was announced at the Autumn Budget 2024 and confirmed in the Finance Act 2026. From April 2027, that era comes to an end.
Is my pension part of my estate?
Until now, the answer has been a reassuring no. Your pension was held in trust, separate from your home, your savings and your possessions. That’s what made it such a useful estate planning tool.
Under the 2026 legislation, the answer depends on when you die. If you die before 6 April 2027, your pension usually stays exempt. If you die after that date, the government will treat your pension pot as just another asset, added to the value of your home and savings when your family’s tax bill is worked out.
What the 40% figure actually means
The line that’s caused most worry is the 40% tax on pensions after death. It sounds alarming, so it’s worth looking at the maths.
The tax doesn’t apply to your whole pot automatically. It only applies to the part of your estate above your Nil Rate Band, currently £325,000, and your Residence Nil Rate Band, up to £175,000.
The real risk is fiscal drag. Those thresholds have been frozen while house prices and pension pots have grown, so more families are being pulled into the net. A modest home and a lifetime of steady saving could now add up to a tax bill that wouldn’t have existed two years ago.
What you can do now
There are several legitimate ways to soften the impact. We’d rather you planned ahead than scrambled later.
Look again at the order you spend things
It used to make sense to spend your ISAs first and leave your pension untouched, because beneficiaries only paid income tax when they withdrew the money and no inheritance tax. Now it may be more tax efficient to spend your pension earlier and hold on to assets that are already subject to inheritance tax.
Think about gifting, carefully
You can still give away up to £3,000 a year tax free, or make larger Potentially Exempt Transfers. If you’ve got more in your pension than you realistically need for your own retirement, starting to gift now could reduce the taxable value of your estate by 2027.
Check who’ll inherit your pension
Make sure you’ve told us who should get your money. This doesn’t change the inheritance tax position, but it means your pension can be shared efficiently among the people you’ve named, which can sometimes help manage the family’s overall tax position. You can update the beneficiaries for your Octopus Money Direct pension in the ‘profile’ section of Online Service.
Looking ahead with us
The 2026/27 tax year is a period of transition. It’s worth stepping back and looking at the whole picture, so your money works for the life you want to live and the legacy you want to leave.
The next few months matter. Understanding the new rules now gives you time to make the small adjustments that keep your hard earned savings where they belong, with your family.
We hope the information in this article is useful, but it isn’t financial, personal or tax advice. If you’d like advice, Octopus Money can provide professional help. Remember, the value of investments can go up and down, so you may get back less money than you put in.
You should think of investing as a medium to long-term commitment – so be prepared to invest your money for at least five years. Tax depends on your individual circumstances and the regulations may change in the future.
More on pensions
Your pension options explained
What you can do with your pension once you’re able to access it.
Lump sum allowances, an explainer
How much you can take tax free, and what happens above that.
Understanding pension tax before retirement
The tax rules worth knowing before you start taking money out.