Inheritance Tax

Is my UK pension subject to inheritance tax if I live abroad?

Answered by Jordan Onraet-Wells, Founder & Chartered Tax Adviser (CTA). Published 9 August 2026. Last reviewed 9 August 2026.

The short answer

Yes, from 6 April 2027 it can be. For deaths on or after that date, unused funds in a UK registered pension are counted as part of your estate for UK inheritance tax, and living abroad does not take them out: a SIPP or UK personal pension is a scheme established in the UK, so it stays within HMRC's reach even after you have stopped being a long-term UK resident. The change is already law, enacted in Finance Act 2026. For deaths before 6 April 2027, most defined contribution funds held under discretionary disposal remain outside the estate.

For deaths on or after 6 April 2027, most unused pension funds and death benefits are included in the estate for UK inheritance tax, with no separate nil-rate band for pensions.
Waiting out the 3 to 10 year leaver tail frees your foreign assets, but not your pension: HMRC confirms schemes established in the UK stay chargeable for non-long-term UK residents.
Transfers to a spouse or civil partner who is not a long-term UK resident are exempt only up to a cumulative £325,000 cap, unless the survivor makes an irrevocable election into full UK scope.
Where death occurs at or after age 75, beneficiaries also pay income tax on withdrawals, so the combined effective rate can reach roughly 67% in the worst case.
Dependants' scheme pensions, death in service benefits, continuing joint life annuities and certain trivial commutation lump sums are excluded from the new charge.

What changes on 6 April 2027

Finance Act 2026, which received Royal Assent on 18 March 2026, amends the Inheritance Tax Act 1984 so that for deaths on or after 6 April 2027 most unused pension funds and pension death benefits are treated as an asset of the estate. HMRC's technical note, last updated on 29 May 2026, confirms the mechanics: the fund is valued at death and taxed alongside everything else, with the ordinary £325,000 nil-rate band stretched across the whole estate. Some benefits are excluded, chiefly dependants' scheme pensions from defined benefit schemes, death in service benefits, continuing joint life annuities and certain trivial commutation lump sums. Our guide to UK pensions and inheritance tax when you live abroad covers the detail.

Why leaving the UK does not help

Under the residence-based rules in force since 6 April 2025, once you stop being a long-term UK resident only your UK assets stay in scope. Many expats read that as a ten-year escape plan, and for foreign assets it broadly is. The pension is the exception: HMRC's technical note is explicit that inheritance tax still arises on unused funds in any scheme established in the UK, and a SIPP, UK personal pension or UK occupational scheme is established in the UK wherever you live. There is a second trap for couples abroad: the spouse exemption is only unlimited where the survivor is a long-term UK resident, otherwise it is capped at a cumulative £325,000, and a pension pot on its own can exhaust both that cap and the nil-rate band.

The double hit and your options

If you die at or after 75, beneficiaries also pay income tax at their marginal rate on what they draw, and from April 2027 the two charges stack: a pound of chargeable pension can become roughly 33 pence in the hands of an additional rate beneficiary, a combined rate of about 67%. The realistic options before April 2027 include faster drawdown (many treaties give your country of residence sole taxing rights over UK pension income), lifetime gifting under the 7-year rule, life cover written in trust to fund the bill, and for some a transfer to a QROPS, though the 25% overseas transfer charge must be navigated first. The right sequence is a modelling exercise, not a rule of thumb, and Horizon runs exactly this review for expats on fixed fees agreed upfront: book a free clarity call at /book.

Go deeper

Sources and further reading

This is general information for the 2026/27 UK tax year, not personal tax advice; speak to a Chartered Tax Adviser about your own position.

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