UK Pensions & Inheritance Tax: Why UK expats need to review their arrangements before April 2027

For many British expatriates, UK pensions have long been viewed as one of the most tax-efficient assets to leave behind.

Historically, many defined contribution pensions have sat outside the estate for UK inheritance tax purposes, particularly where benefits are paid under trustee discretion. That has made pensions not only a retirement income vehicle, but in many cases, a powerful intergenerational wealth planning tool.

From 6 April 2027, that position changes.

Under the new UK rules, most unused pension funds and pension death benefits will be brought into the value of an individual’s estate for inheritance tax purposes. HMRC has confirmed that personal representatives will be responsible for reporting and paying any inheritance tax due on unused pension funds and pension death benefits.

For UK expats, particularly those living in Portugal or planning to move here, this is not something to ignore.

Why this matters

Many UK expats have built up substantial pension wealth over their working lives. In some cases, those pensions may represent the largest part of the family’s long-term wealth.

Until now, it has often been common planning logic to draw more heavily from other assets first — such as ISAs, cash, investments or property — while preserving pensions for later life or for beneficiaries.

That logic may need to be reviewed.

From April 2027, pension death benefits paid to non-exempt beneficiaries, such as children, grandchildren, unmarried partners or trusts, may be included in the estate for inheritance tax purposes. Transfers to spouses, civil partners and qualifying charities are expected to remain exempt.

In simple terms, your UK pension may no longer be the inheritance tax shelter it once was.

What is being brought into scope?

The new framework is expected to capture a wide range of pension death benefits, including many unused defined contribution pension funds.

Certain benefits are expected to remain outside the scope, including most genuine death-in-service benefits from registered pension schemes and some continuing annuity-style benefits, such as joint-life annuities.

However, the sensible starting point is this:

Assume your UK pension may be relevant for inheritance tax unless a clear exclusion applies.

That does not mean every family will pay more tax. But it does mean pensions must now be reviewed as part of the wider estate planning conversation.

The new administrative burden

One of the biggest changes is not just the tax itself, but the administration around it.

Personal representatives will need to identify pension arrangements, obtain valuations, include pension values in the estate calculation, and work out what inheritance tax is due. HMRC has confirmed that personal representatives will be able to direct pension scheme administrators to withhold up to 50% of taxable benefits for up to 15 months, and to pay inheritance tax directly to HMRC before the remaining benefits are released.

For families dealing with grief, probate, overseas residency, multiple pensions and cross-border tax questions, this could create real complexity.

That complexity may be even greater where someone has several old UK pensions, legacy schemes, QROPS, SIPPs, personal pensions, annuities or pension funds with unclear nomination forms.

The potential for double taxation

The rules will also interact with existing income tax treatment on pension death benefits.

Where someone dies after age 75, beneficiaries may still face income tax when they receive pension benefits. The legislation includes provisions intended to avoid income tax being charged on the full amount where inheritance tax has already been paid, but the combined position can still be unattractive for some families.

This is why the issue should not be looked at in isolation.

It is not simply a question of “will there be inheritance tax?” It is a question of:

What is the overall tax outcome for the family, across inheritance tax, income tax, residency, pension structure and timing?

For British expats, that wider picture matters.

Why UK expats should pay particular attention

If you are living outside the UK, or planning to move abroad, your pension planning should not be based only on UK assumptions.

A UK pension may still be governed by UK pension rules. But your personal tax residence, your beneficiaries’ residence, the country you live in, the double tax treaty position, local reporting rules and future estate planning all matter.

For someone retiring to Portugal, for example, there may be important questions around:

• whether to draw from pensions earlier or later;

• whether pension income should be structured differently;

• whether nominations are up to date;

• whether a spouse or children should remain beneficiaries;

• whether old pension pots should be consolidated;

• whether annuity, drawdown or investment bond planning should be considered;

• how Portuguese tax treatment interacts with UK pension withdrawals;

• whether the pension should still be viewed as the “last asset to touch”.

There is no single answer. The right approach depends on your age, health, family position, income needs, estate size, tax residence, pension type and long-term intentions.

What should you review now?

The first step is not to panic. The first step is to get organised.

British expats should consider reviewing:

1. All UK pension arrangements Identify every pension, including old workplace schemes, SIPPs, personal pensions, defined benefit schemes, annuities and any overseas pension transfers.

2. Death benefit nominations Make sure nominations are current, deliberate and aligned with your wider estate planning. These are no longer just administrative forms.

3. Your likely estate value Include property, investments, cash, pensions, life policies, business interests and overseas assets.

4. Beneficiary planning Understand whether benefits are likely to pass to a spouse, civil partner, children, grandchildren, cohabitee, trust or charity.

5. Drawdown strategy The old approach of preserving pensions at all costs may no longer be right for everyone.

6. Cross-border tax position UK pension planning should be coordinated with the tax rules in the country where you live.

7. Liquidity Families may need access to cash to deal with tax liabilities, especially where estates contain property or illiquid pension assets.

At Atlas Bridge Wealth, we help British expatriates review their UK pensions, retirement income strategy and wider cross-border planning. We do not provide Portuguese tax advice directly, but we work closely with trusted tax and legal specialists where formal tax advice is required.

The rules are changing. The families who prepare early will be in a much stronger position than those who leave it until 2027.

This article is for general information only and does not constitute personal financial, pension or tax advice. The rules may change and individual circumstances vary. UK and Portuguese tax advice should be taken from appropriately qualified professionals before making any decisions. Investment values can fall as well as rise.