UK Pensions and Inheritance Tax from April 2027: What UK Expats in Australia Need to Know

For many UK expatriates living in Australia, a UK pension remains an important part of their retirement wealth.

From 6 April 2027, however, the way many UK pension benefits are treated for UK Inheritance Tax (IHT) purposes will change significantly.

Under legislation contained in Finance Act 2026, most unused pension funds and pension death benefits will be brought within the value of a deceased person’s estate for IHT purposes for deaths occurring on or after 6 April 2027.

For UK expatriates in Australia, this makes it increasingly important to consider UK pensions as part of wider cross-border estate and financial planning rather than looking at them solely as retirement assets.

What is changing from 6 April 2027?

Historically, many discretionary UK pension arrangements have generally been capable of sitting outside the member’s estate for UK IHT purposes.

That position changes substantially from 6 April 2027.

Most unused pension funds and pension death benefits will be included when determining the value of a deceased person’s estate for IHT purposes. The legislation was enacted through Finance Act 2026, which received Royal Assent on 18 March 2026.

This does not mean every UK pension will become subject to IHT or that every estate containing a pension will have an IHT liability.

It does mean that pension wealth may need to be considered alongside property, investments and other assets when establishing the overall IHT position.

Why does this matter if you live in Australia?

Living in Australia does not necessarily remove an individual from the UK IHT regime.

Since 6 April 2025, the UK has principally used a residence-based system for determining whether non-UK assets fall within IHT rather than the previous domicile-based approach.

Broadly, an individual can become a long-term UK resident for IHT purposes after being UK resident for at least 10 of the previous 20 tax years.

Importantly, leaving the UK does not necessarily end that status immediately.

Depending upon the person’s UK residence history, they can remain within the long-term UK residence regime for between 3 and 10 tax years after leaving the UK.

A UK expatriate living in Australia could therefore potentially have:

• Australian property and investments
• Australian superannuation
• UK property or investments
• UK pensions

From April 2027, relevant UK pension benefits may form another part of the overall estate that needs to be considered when determining potential UK IHT exposure.

Which pension benefits will be affected?

The legislation is intended to bring most unused pension funds and pension death benefits within the deceased person’s estate.

There are, however, important exclusions.

HMRC confirms that death-in-service benefits payable from registered pension schemes will be excluded. Certain dependant’s scheme pensions from defined benefit and collective money purchase arrangements are also excluded.

The treatment therefore depends upon the particular pension arrangement and the benefits payable on death.

This distinction is particularly important for people who have accumulated several UK pensions during their working lives, as different arrangements may provide different types of death benefits.

What about benefits passing to a spouse or civil partner?

The existing IHT spouse and civil-partner exemption remains important.

Where pension benefits pass to a surviving spouse or civil partner and the relevant conditions for the exemption are satisfied, the transfer may continue to benefit from the applicable IHT exemption.

The ultimate position will depend upon the pension benefits involved and the individual’s circumstances, so the existence of the 2027 rules should not be interpreted as meaning that pension death benefits automatically create an IHT charge.

Could pension beneficiaries also pay Income Tax?

Potentially.

UK pension death benefits have their own Income Tax rules, and the new IHT regime does not simply replace those rules.

HMRC’s 2026 technical material specifically addresses how the new IHT provisions interact with the existing Income Tax treatment of pension death benefits.

This means that the eventual tax treatment can depend upon several factors, including the nature of the pension benefit, the member’s circumstances at death and the beneficiary receiving it.

For UK expatriates and their families in Australia, this is another reason why pension death-benefit planning should be considered as part of the wider cross-border position.

How will the new system operate?

The administration of the new regime is more involved than simply adding a pension value to an estate.

HMRC’s technical notes explain the processes for identifying and valuing relevant pension property, exchanging information between personal representatives and pension scheme administrators, calculating liabilities and facilitating payment of IHT attributable to pension benefits.

HMRC is continuing to develop secondary legislation, guidance and supporting material ahead of implementation in April 2027.

This is an area we would therefore expect to continue evolving operationally before the rules take effect.

Does this mean I should transfer or withdraw my UK pension?

Not necessarily.

The introduction of the new IHT rules should not, by itself, determine whether somebody should retain, transfer or access a UK pension.

A UK pension may contain valuable guarantees, investment benefits, tax characteristics or other features that need to be considered before making any decision.

For somebody living in Australia, there can also be Australian superannuation, taxation, foreign exchange and regulatory considerations.

The appropriate approach therefore depends upon the individual’s complete circumstances rather than IHT alone.

Why reviewing beneficiary arrangements remains important

The 2027 reforms provide another reason to understand exactly what happens to each UK pension on death.

That can include reviewing:

• the type of pension arrangement;
• current nominated or potential beneficiaries;
• scheme death-benefit provisions;
• whether benefits are discretionary;
• the form in which benefits can be paid;
• existing expression-of-wish nominations; and
• how the pension fits within the individual’s wider estate planning.

Reviewing these arrangements does not necessarily mean they should be changed. The objective is first to understand what is currently in place.

Planning before April 2027

For UK expatriates in Australia with substantial UK pension benefits, the period before April 2027 provides an opportunity to review how those pensions interact with their wider financial and estate-planning position.

Relevant questions may include:

• Am I still a long-term UK resident for IHT purposes?
• When might my worldwide assets cease to fall within the UK IHT regime?
• What UK pensions do I retain?
• What death benefits do those schemes provide?
• Who are the intended beneficiaries?
• What other UK and Australian assets do I own?
• How does my Australian superannuation fit into the overall position?
• Are my existing estate-planning arrangements still appropriate?

For some people, specialist UK taxation and legal advice may also be required.

How The UK Pension Experts can help

The UK Pension Experts specialises in financial-planning issues involving UK pensions and Australia.

We can help clients understand their existing UK pension arrangements and how those arrangements interact with their Australian financial position and broader estate-planning objectives.

Where specialist UK or Australian taxation or legal advice is required, this may involve working alongside the client’s appropriately qualified professional advisers.

Our role is not to replace specialist taxation or legal advice, but to help ensure that the pension and financial-planning elements are properly considered within the overall cross-border strategy.

 

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Frequently Asked Questions

Are all UK pensions subject to Inheritance Tax from April 2027?

No. The legislation brings most unused pension funds and pension death benefits within the estate, but there are exclusions, including registered-scheme death-in-service benefits and certain dependant’s scheme pensions.

Does living in Australia prevent the new rules applying?

Not necessarily. An individual’s UK IHT position depends partly upon their UK residence history. Someone who has left Britain can remain a long-term UK resident for IHT purposes for between 3 and 10 tax years, depending upon their previous UK residence.

Do the changes start on 6 April 2027?

Yes. They apply to relevant pension benefits where the pension member dies on or after 6 April 2027.

Should I transfer my UK pension before April 2027?

The IHT change alone does not establish whether transferring a pension is appropriate. Pension guarantees, benefits, taxation, investment arrangements, Australian superannuation rules and the individual’s objectives all need to be considered.

Should I review my UK pensions before the rules change?

For people potentially affected, understanding existing pension arrangements, death benefits and beneficiaries before April 2027 can help establish whether further financial, taxation or estate-planning advice is appropriate.

Important information

This information is general in nature and does not constitute personal financial, taxation or legal advice. UK and Australian taxation and estate-planning rules are complex and can change. Individual outcomes depend upon personal circumstances. Appropriate specialist taxation and legal advice should be obtained where required.