Inheritance Tax on Pensions for British Expats: May 2026 Update
TL;DR
From April 2027, many unused UK pension funds are expected to become subject to UK Inheritance Tax — including for many British expats living overseas. UK pensions are generally treated as UK situs assets, meaning they can remain within the UK IHT net regardless of how long someone has lived abroad. HMRC’s latest guidance also suggests that executors, rather than pension providers, will carry much of the administrative burden, including locating pensions, obtaining valuations, reporting to HMRC and coordinating tax payments. For expat families with assets, beneficiaries or executors spread across multiple countries, the complexity could be significant. This is no longer just a pension issue — it is becoming a major cross-border estate planning consideration.
For many years, UK pensions have been viewed as one of the most tax-efficient assets to pass on to the next generation.
That is set to change.
From 6 April 2027, the UK government plans to bring many unused pension funds into the scope of UK Inheritance Tax (IHT).
And recent guidance from HMRC suggests the practical implications may be even more complicated than many had realised.
Quick Summary
- From April 2027, many unused UK pension funds will become subject to UK Inheritance Tax.
- UK pensions are considered UK situs assets.
- This means they remain within the scope of UK Inheritance Tax even if someone has lived abroad for many years.
- Estate executors, not pension providers, will now be expected to deal with much of the reporting and payment process.
- Families with multiple pensions, overseas beneficiaries, or cross-border estates may face significant administrative complexity.
UK Pension Inheritance Tax Rules Are Changing
Historically, most defined contribution pensions sat outside a person’s estate for UK Inheritance Tax purposes.
As a result, many retirees deliberately spent other assets first and left pensions untouched as part of their estate planning strategy.
The Autumn 2024 Budget changed direction.
🔗 UK Budget 2024 – What does it mean for expats?
The government announced plans to bring most unused pension funds and pension death benefits into the Inheritance Tax net from April 2027.
HMRC has now released a technical note explaining how the system is expected to work in practice.
🔗 HMRC Technical Note: Inheritance Tax on Pensions
One of the biggest changes is who will actually deal with the new process.
Originally, pension providers were expected to handle much of the reporting and payment of tax.
HMRC has now confirmed that much of this responsibility will instead fall on the executors or personal representatives of the estate.
In simple terms:
The administrative burden is moving away from pension providers and onto families.
Executors Now Face A Much Bigger Job
As outlined in the new technical note from HMRC, executors will now be responsible for:
- Locating all pension arrangements
- Obtaining date-of-death valuations
- Reporting pension values to HMRC
- Calculating any Inheritance Tax due
- Coordinating tax payments before probate progresses
- Communicating with pension providers and beneficiaries across multiple jurisdictions
If you think this sounds complicated enough, now factor in the fact that most people have multiple pensions spread across a number of different providers.
The challenges will be even greater for families dealing with assets, beneficiaries, or executors located across multiple countries and time zones.
Poll
New Pension “Payment” and “Withholding” Notices
As part of the proposed changes, HMRC is introducing two new processes designed to “help” executors deal with potential Inheritance Tax bills on pensions.
While sensible in theory, they are set to add yet another layer of administration to the process.
The “Withholding” Notice
If executors believe that Inheritance Tax may be due on a pension, they may be able to ask the pension provider to temporarily hold back part of the death benefits while the tax position is worked out.
In practice, this could delay beneficiaries receiving full access to inherited pension funds for many months.
The intention is to prevent money being distributed before the final Inheritance Tax position has been agreed.
The “Payment” Notice
Executors and beneficiaries may also be able to instruct the pension provider to pay some of the Inheritance Tax bill directly to HMRC from the pension itself.
This may help families avoid having to find cash elsewhere in the estate to settle a large tax bill.
However, it also means executors may need to coordinate between HMRC, pension providers, beneficiaries, and the wider estate administration process.
For internationally connected families, the practical side could quickly become complicated.
Case Study: How Sam’s Family Would Be Affected By The New Rules
The Situation
Sam was 78 and had been living in the Philippines for 15 years when he passed away.
He had several UK pensions from different providers, alongside bank accounts and investments in both the UK and offshore.
Most of his pension paperwork was stored in the Philippines.
His daughter lived in Switzerland.
His son lived in the UK.
If Sam Died Today
Under the current rules, Sam’s unused pension funds would generally sit outside his estate for UK Inheritance Tax purposes.
While the family would still need to contact the pension providers and process the death benefits, the pensions themselves would usually not create an additional UK Inheritance Tax reporting burden.
If Sam Died After April 2027
The situation could look very different.
Sam’s executors will need to:
- Track down multiple UK pensions
- Obtain valuations from each provider
- Report the pension values to HMRC
- Assess whether Inheritance Tax is due
- Coordinate payments between the estate, pension schemes, and beneficiaries
And despite Sam living outside the UK for more than a decade, his UK pensions will still fall within the UK Inheritance Tax net because they are considered UK situs assets.
UK Pensions Remain UK Situs Assets
This is one of the most misunderstood areas for British expats.
Many people assume that once they have lived outside the UK for a long period, UK Inheritance Tax will not apply to their pension once the rules change.
However, UK pensions are generally treated as UK situs assets.
In practice, this means they will remain within the scope of UK Inheritance Tax regardless of how long someone has lived overseas.
For long-term expats, this could come as an unwelcome surprise.
🔗 What Are UK Situs Assets? What Every Long-Term Expat Needs to Know
Case Study: What British Expats Should Think About Now
The Situation
These rules are not yet in force.
But they are close enough that many expats should now begin reviewing their position.
In particular:
- Do you know roughly how much of your wealth sits inside pensions?
- Have your beneficiary nominations been reviewed recently?
- Would your spouse or children know where all your pensions are held?
- Are your wills and estate plans still appropriate?
- Could your executors realistically manage this process from overseas?
The Implication
For some families, unused pension funds may soon become one of the largest Inheritance Tax considerations in their estate plan.
Pensions and Inheritance Tax: Frequently Asked Expat Questions
How much tax do I pay on an inherited pension?
The answer depends on several factors, including:
- the age of the person who died
- whether the pension falls within the scope of Inheritance Tax
- how and when the beneficiary takes the money
- the beneficiary’s own tax position
Under the proposed rules from April 2027, unused pension funds will become subject to UK Inheritance Tax at 40% if the estate exceeds the available allowances.
On top of this, beneficiaries may also pay Income Tax when withdrawing money from the inherited pension, depending on the circumstances.
This means that, in some situations, the combined tax exposure on inherited pensions could exceed 60-70%.
For British expats and internationally connected families, the position can become even more complicated where multiple tax systems or double tax agreements are involved.
What are the changes in IHT and pensions in 2027?
Under the government’s new proposals, unused UK pension funds will become subject to UK Inheritance Tax from 6 April 2027.
At present, unused defined contribution pensions sit outside the estate for Inheritance Tax purposes.
The proposed changes could significantly alter that position for many families.
If I have lived abroad for many years, can my UK pension still be subject to UK Inheritance Tax?
Potentially, yes.
This is one of the areas that surprises many long-term expats.
UK pensions are generally treated as UK situs assets, meaning they may remain within the scope of UK Inheritance Tax regardless of how long you have lived overseas.
Living abroad does not automatically remove UK Inheritance Tax exposure on UK pensions.
What is a UK situs asset?
A UK situs asset is an asset considered to be located in the UK for tax purposes.
Examples can include:
- UK pensions
- UK property
- Shares in some UK companies
This matters because UK situs assets may remain exposed to UK Inheritance Tax even if the owner has been living overseas for years.
Should British expats review their estate plans now?
Yes.
Even though the rules are not expected to take effect until April 2027, this may be a sensible time to review:
- pension beneficiary nominations
- wills
- estate structures
- cross-border succession arrangements
- how much wealth sits inside pensions
Many long-standing pension and estate planning assumptions may need revisiting under the proposed rules.
What happens to my UK pension if I retire overseas?
In most cases, your UK pension remains fully accessible after you retire abroad.
However, retiring overseas can affect:
- how your pension is taxed
- which drawdown options are available
- the currency your income is paid in
- whether your provider is willing to continue servicing you
Some countries have double tax agreements with the UK, which may help prevent the same pension income being taxed twice.
At the same time, some UK pension providers place restrictions on non-UK residents, particularly around flexi-access drawdown and investment options.
For long-term expats, there may also be wider considerations around estate planning, succession law, and the new rules that bring UK pensions within the scope of UK Inheritance Tax from April 2027.
Further Reading
Final Thoughts
For years, pension planning for expats has largely focused on retirement income, tax residency, and investment management.
Inheritance Tax may now become an equally important part of the conversation.
The proposed 2027 pension changes are not simply about higher taxes.
They are about greater complexity.
And for internationally connected families, that complexity may be far more significant than many people currently realise.
If you are a British expat approaching retirement or reviewing your estate planning arrangements, this is an area worth revisiting carefully.
Talk to an Expert
The proposed 2027 pension inheritance tax changes could significantly alter how many British expats think about pensions, estate planning and passing wealth to the next generation. For internationally connected families, the complexity may ultimately become a bigger issue than the tax itself.
I’m Ross Naylor, a UK-qualified Chartered Financial Planner with nearly 30 years’ experience helping British expats navigate cross-border pensions, inheritance tax and long-term estate planning. I regularly work with families who hold UK pensions while living overseas and who need clarity around how UK tax rules interact with international lives and assets.
I firmly believe your location in the world should never be a barrier to expert, impartial and transparent financial advice you can trust.
If you are concerned about how the proposed pension inheritance tax rules may affect your family, executors or long-term estate planning arrangements, reviewing your position before the rules take effect could help avoid unnecessary complexity later.
Book a confidential consultation