From 6 April 2027, unused pension funds - including those held within a Small Self-Administered Scheme (SSAS) - will form part of the deceased’s estate for Inheritance Tax purposes. For directors who have structured their pension with an estate planning objective in mind, this is a significant change that warrants review before the date arrives.
Until April 2027, unused pension funds can pass to beneficiaries outside the Inheritance Tax estate. A SSAS or personal pension that has not been drawn at the point of death can be passed on without an IHT charge on the pension fund itself.
From 6 April 2027, this changes. Unused pension funds will be included in the deceased’s estate for Inheritance Tax purposes. The change applies to defined contribution schemes, including SIPPs and SSAS pensions.
This does not affect the pension wrapper during the director’s lifetime. It does not change how a SSAS operates, how contributions are made, or how the fund is invested. What changes is the IHT treatment of whatever remains in the fund at the point of death.
Business Property Relief does not apply to pension assets. There is no BPR exemption available on a SSAS fund. The full 40% Inheritance Tax rate will apply to the portion of the pension fund that forms part of the taxable estate.
TLPI does not position a SSAS as an Inheritance Tax planning vehicle. Its primary value is Corporation Tax reduction and direct investment control. Some directors have nonetheless built their SSAS on the understanding, accurate until now, that unused funds could pass to beneficiaries outside the Inheritance Tax estate. From April 2027 that is no longer the case, and the section below sets out what it changes.
For directors in this position, the questions to consider before April 2027 are:
These are not questions with standard answers. They depend on the individual’s age, health, pension income position, other assets, and intentions for the business.
For directors managing both a trading company and a SSAS, the April 2027 change and the Business Property Relief position interact in an important way.
Prior to April 2027, a director might reasonably hold surplus profits in the SSAS - via pension contributions - rather than in the trading company, on the basis that the SSAS provided both a Corporation Tax benefit and an IHT advantage. From April 2027, the IHT advantage on the SSAS disappears.
Pension contributions continue to make sense for the Corporation Tax benefit. A £100,000 employer contribution saves £25,000 in Corporation Tax. That value does not change. But the rationale for maximising pension accumulation specifically as an estate planning strategy changes fundamentally. Our guide to the Business Property Relief changes sets out how the two sets of rules interact.
A Family Investment Company (FIC) - or a combined SSAS and FIC structure - may offer a more appropriate balance once pension assets enter the taxable estate. The FIC provides a vehicle for holding surplus cash and investment assets outside both the trading company and the pension, with the director retaining full control.
The time available to review and restructure before April 2027 is limited. Structural changes - including establishing a FIC or adjusting the balance between pension contributions and other profit extraction routes - require time to implement properly.
TLPI’s Lifetime Business Tax Plan (LBTP) addresses both the Corporation Tax position through a SSAS and the estate planning position through a FIC, as a single integrated structure. For directors who are currently maximising pension contributions with an IHT objective in mind, the LBTP provides a framework for restructuring the approach before the April 2027 change takes effect.
If you would like to understand how the April 2027 pension IHT change affects your position and what steps are available, book a free 15-minute call.
Yes. The test is whether the money is still inside the pension, not whether the fund has been crystallised. A drawdown pot that has been designated but not yet withdrawn is still an unused pension fund, so whatever remains in it at the point of death will form part of the estate. Money that has already been withdrawn and is sitting in a bank account or an investment was always part of the estate, so nothing changes there. Moving a fund into drawdown before April 2027 does not, by itself, take it outside the estate.
Yes. The change applies at the level of the registered pension scheme, not the product name. A SSAS, a SIPP and a workplace defined contribution pension are all caught in the same way, and the same 40% rate applies to whatever is unused at the point of death. Holding a fund in a SSAS rather than a SIPP does not change the Inheritance Tax position. What it does change is the range of investments available and the degree of control the director holds during their lifetime, which is why TLPI positions a SSAS on Corporation Tax and investment control rather than on estate planning.
The existing spouse and civil partner exemption is being kept. Where unused pension funds pass to a surviving spouse or civil partner, no Inheritance Tax is due at that point, in the same way as any other asset left to a spouse. The exposure is not removed, though. It is deferred. Whatever remains on the second death forms part of the survivor’s estate, and because pension funds now count towards that estate, it can more easily pass £2 million, the level at which the residence nil-rate band begins to taper away. Unmarried partners do not qualify for the exemption at all, so unused funds passing to them are exposed to Inheritance Tax in full. For a director planning around this change, the position worth modelling is the second death, not the first.
No. The government confirmed that death in service benefits paid from a registered pension scheme are excluded, whether or not the scheme is discretionary. This was a change from the original proposal and followed the technical consultation. A director whose company provides death in service cover through a registered scheme should not assume that cover is caught by the April 2027 rules. Standalone life cover held in a separate trust follows its own rules and is worth checking separately.
In some cases, yes. The Income Tax rules on inherited pensions are not changing, and they still turn on the member’s age at death. Where the member dies before age 75, beneficiaries can usually draw the fund without an Income Tax charge, though a lump sum above the lump sum and death benefit allowance of £1,073,100 is taxed at the beneficiary’s marginal rate. Where the member dies at or after 75, beneficiaries pay Income Tax at their own marginal rate on what they draw, and from April 2027 that can combine with a 40% Inheritance Tax charge on the same fund. The two taxes do not both fall on the same pounds, because Income Tax is not charged on the portion of the fund used to pay the Inheritance Tax. Even so, for a beneficiary paying Income Tax at the additional rate, the combined effect on money inherited after age 75 can reach around 67%. This makes the age 75 point considerably more significant than it was.
The personal representatives of the estate. The original proposal placed that duty on pension scheme administrators, and it was dropped after consultation. From April 2027, the personal representatives report the unused pension funds and pay the Inheritance Tax due, and beneficiaries can ask the scheme to pay their share of the tax directly from the pension. For a SSAS, where the members and the trustees are often the same small group, it is worth establishing now who would act and how the tax would be funded.