Inheritance Tax on Pensions from April 2027: A UK Expat Guide

For years, a UK pension was one of the most efficient ways to pass wealth to the next generation. Unused pension funds sat outside your estate, so many expats I work with in Vietnam deliberately spent their other savings first and left their pension untouched for their children. That approach is about to change. From 6 April 2027, inheritance tax on pensions will apply to most unused pension funds and death benefits, and for some families the combined tax bill could exceed two-thirds of the pot.

If you are a UK expat, the change raises extra questions. Does it matter that you live in Ho Chi Minh City, Hanoi or Da Nang? Is a QROPS still a way around it? And what should you be doing in the months before the new rules arrive? In this guide, I explain how the new rules work, how they interact with your residence status, and the practical steps you can take now, using worked examples to show the real impact on expat families.

Key Takeaways

• From 6 April 2027, most unused pension funds and pension death benefits will be counted as part of your estate for UK inheritance tax, which is charged at 40% above your allowances.
• Your executors will be responsible for reporting and paying the tax, and they can ask pension schemes to withhold up to 50% of benefits for up to 15 months while the bill is settled.
• Living abroad does not remove the charge on a UK pension. Long-term UK residents are taxed on pensions wherever the scheme is based, and even non-long-term residents remain taxed on UK registered pensions such as SIPPs.
• If you die at 75 or over, your beneficiaries may pay income tax as well as inheritance tax, producing combined effective rates of up to 67% for additional-rate taxpayers.
• Pensions left to a spouse or civil partner remain exempt in most cases, but this usually delays the bill rather than removing it, so reviewing nominations, withdrawal plans and protection before April 2027 is essential.

What Is Changing With Inheritance Tax on Pensions in April 2027?

How Pensions Are Treated Today

At present, most defined contribution pensions, such as personal pensions and SIPPs, are held under discretionary trust arrangements. Because the scheme administrator technically decides who receives your death benefits, the funds are not treated as part of your estate. As a result, an untouched pension can usually pass to your family free of inheritance tax, whatever its size.

What Happens From 6 April 2027

For deaths on or after 6 April 2027, the government is bringing most unused pension funds and pension death benefits within the value of your estate. In practical terms, your pension will be added to your house, savings and investments when your executors work out whether inheritance tax is due. If your total estate exceeds your available allowances, the excess will be taxed at 40%.

Importantly, the timing depends on the date of death, not the date benefits are paid. If someone dies on 1 April 2027, the current rules apply, even if the pension is paid out to their family months later.

Which Pension Benefits Are Included and Which Are Not

In other words, the change mainly affects defined contribution pensions. A traditional final salary pension that simply pays a spouse's pension on death is far less exposed, whereas a large SIPP that you planned to pass on untouched is very much in the firing line.

Why Inheritance Tax on Pensions Hits UK Expats Differently

Many expats assume that because they live in Vietnam, UK inheritance tax no longer applies to them. However, since 6 April 2025, UK inheritance tax depends on whether you are a long-term UK resident, meaning you were UK tax resident for at least 10 of the previous 20 tax years. Once you leave the UK, that status continues for a further 3 to 10 tax years, depending on how long you lived there. This continuing period is often called the IHT tail.

Your Residence Status Decides Which Pensions Are Caught

A UK Pension Stays in Scope Even After Your Tail Ends

This is the point that catches most expats off guard. According to HMRC's technical note on the new rules, people who are not long-term UK residents will not be charged on pension schemes established outside the UK, but they will still be charged on UK registered pension schemes. So even if you have lived in Vietnam for 20 years, a SIPP or UK personal pension can still be hit by inheritance tax when you die.

Because of this, the location of your pension now matters as much as the location of your property. If you are unsure how your UK pension is currently set up, our guide on how to manage UK pension in Vietnam walks through the main options for British expats.

Are QROPS and QNUPS Still a Way Around It?

In the past, transferring to an overseas scheme was sometimes promoted as a way of keeping pension wealth outside UK inheritance tax. From April 2027, that argument is much weaker. Qualifying non-UK pension schemes, which include QROPS and QNUPS, are within scope for anyone who is a long-term UK resident when they die.

An overseas scheme can still keep pension funds outside UK inheritance tax for someone who is not a long-term UK resident. However, a transfer from a UK scheme to a QROPS usually triggers a 25% overseas transfer charge unless an exemption applies, and since 30 October 2024 the exemption for transfers within the European Economic Area has been removed. For most expats living in Vietnam, therefore, a transfer only makes sense after careful analysis. Our comparison of SIPP vs QROPS vs QNUPS explains how each structure works in more detail.

The Double Tax Problem: Inheritance Tax and Income Tax Together

Inheritance tax is only half the story. Pension death benefits can also be subject to income tax, depending on your age when you die.

The Age 75 Rule

• If you die before age 75: your beneficiaries can usually receive your pension free of income tax, provided it is paid within two years and lump sums fall within the Lump Sum and Death Benefit Allowance of £1,073,100.
• If you die at 75 or over: your beneficiaries pay income tax at their own marginal rate on whatever they withdraw.

From April 2027, both taxes can apply to the same money. Fortunately, the government has introduced a relief so that beneficiaries do not also pay income tax on the part of the pension used to pay inheritance tax. Even so, the combined effect can be severe.

How the Combined Tax Works in Practice

To see the effect, consider £100,000 of unused pension inherited after a death at age 78, where the estate is already above its inheritance tax allowances and the beneficiary is an additional-rate taxpayer:

When Effective Rates Climb Even Higher

For larger estates, the true cost can be even greater. Because pensions will count towards your estate, adding a pension may push the total above £2 million, which begins to taper away the £175,000 residence nil rate band. In those cases, the marginal tax on part of the pension can exceed 67%. If you have a substantial pension, our guide to pension planning for high earners covers the wider strategies worth considering.

Worked Examples: What the Change Means for Expats in Vietnam

Numbers bring these rules to life, so let us look at three typical situations. The names are illustrative, but the scenarios are ones I see regularly.

Example 1: Margaret and Tom, Recent Retirees in Ho Chi Minh City

Margaret and Tom lived in the UK all their lives and moved to Ho Chi Minh City in 2024, so they remain long-term UK residents for several years yet. Margaret has a £400,000 SIPP and Tom has a £300,000 SIPP. They also own their former UK family home, now let, worth £500,000, plus £200,000 of other savings.

If Margaret dies first after April 2027 and leaves her pension to Tom, it is covered by the spouse exemption. When Tom later dies, however, his estate could include both pensions. That gives an estate of £1.4 million. After two nil rate bands (£650,000) and two residence nil rate bands (£350,000), £400,000 is taxable, producing an inheritance tax bill of £160,000. Under today's rules, with both pensions outside the estate, the couple's £700,000 of other assets would have been fully covered by their allowances.

Example 2: David, a Long-Standing Expat in Da Nang

David, 77, has lived in Vietnam since 2010, so he is no longer a long-term UK resident. His Vietnamese assets are therefore outside UK inheritance tax. Yet he still holds a £600,000 SIPP and £50,000 in a UK bank account, both of which remain in scope.

His UK estate totals £650,000. After his £325,000 nil rate band, £325,000 is taxable at 40%, giving £130,000 of inheritance tax, of which roughly £120,000 relates to the pension. His daughter, a higher-rate taxpayer in the UK, inherits the remaining £480,000 of pension and pays 40% income tax as she draws it, around £192,000. Consequently, she keeps about £288,000 of a £600,000 pension. Under the current rules, she would have kept around £360,000.

Example 3: Richard and Lan, a British and Vietnamese Couple in Hanoi

Richard moved to Hanoi in 2023 after a lifetime in the UK, so he is a long-term UK resident. His wife Lan is Vietnamese and has never lived in the UK, so she is not. Richard plans to leave his £900,000 SIPP to Lan.

Because Richard is a long-term UK resident and Lan is not, the spouse exemption is capped at £325,000, on top of Richard's own £325,000 nil rate band. As a result, £250,000 of the pension would be taxable, creating a bill of £100,000. Lan could elect to be treated as a long-term UK resident to unlock the full spouse exemption, but that would bring her own worldwide assets into UK inheritance tax, so the decision needs careful thought.

How Your Family Will Pay: The New Process for Executors

Alongside the tax itself, the April 2027 changes create a new administrative process. Understanding it now will make life far easier for your family later.

Executors Are Responsible for Reporting and Paying

Your personal representatives, usually the executors named in your will, will have to identify every pension you hold, obtain valuations, include them in the inheritance tax calculation and pay any tax due. The tax is due by the end of the sixth month after the month of death, with interest charged after that. Pension beneficiaries also become jointly liable for the tax once they receive their benefits.

Withholding and Direct Payment by the Pension Scheme

• Withholding notice: executors can ask a pension scheme to hold back up to 50% of a beneficiary's entitlement for up to 15 months after the end of the month of death, so funds are available to pay the tax.
• Payment notice: executors or beneficiaries can ask the scheme to pay the inheritance tax directly to HMRC from the pension, rather than finding the cash elsewhere.

Extra Challenges When Your Family Lives Abroad

For expat families, this process can be harder. Executors may live in a different country, overseas pension values must be converted into sterling, and UK pension providers may be unfamiliar with Vietnamese documents such as death certificates. Keeping clear records and an up-to-date will makes a real difference. Our guide to writing a will as a UK expat explains how to choose executors who can manage this.

What About Tax in Vietnam?

Vietnam does not have an inheritance tax on estates, but it does tax certain inheritances as income for the person receiving them, at 10% above VND 20 million under the Personal Income Tax Law that took effect on 1 July 2026. How inherited pension money is treated in Vietnam can depend on how it is paid and who receives it, and there is no UK-Vietnam treaty covering inheritance tax. If your beneficiaries live in Vietnam, it is worth checking their position as part of your planning.

What UK Expats Need to Do Now: A Step-by-Step Action Plan

With the rules confirmed, the months before April 2027 are the time to act. The steps below build on one another, so it is worth working through them in order.

Step 1: Find and List Every Pension You Hold

Start by making a complete list of your pensions, including old workplace schemes, personal pensions, SIPPs and any overseas schemes. For each one, note the provider, policy number, current value and whether it is a defined benefit or defined contribution scheme. If you have lost track of an old pension, the UK government's Pension Tracing Service can help you find it.

Step 2: Confirm Your Long-Term Residence Status

Next, using your residence history, work out whether you are currently a long-term UK resident and when your IHT tail is likely to end. As we saw earlier, this determines whether an overseas scheme is in scope and whether the spouse exemption may be capped.

Step 3: Estimate Your Estate Including Your Pensions

Once you know which pensions count, add them to your other assets to estimate your estate from April 2027. Then deduct your nil rate band, any residence nil rate band and any transferable allowances from a late spouse. This gives you a realistic idea of the potential bill.

Step 4: Review Your Expression of Wish Forms

Most pension schemes ask you to complete an expression of wish, or nomination, form saying who should receive your benefits. Although it does not change the inheritance tax position on its own, it determines who receives the money, who may share liability for the tax and whether the spouse exemption can apply. Many expats have forms that are years out of date, so review each one alongside your will.

Step 5: Rethink the Order You Draw Your Savings

Previously, many people drew from ISAs and other investments first and left their pension untouched. From April 2027, that may no longer be the most tax-efficient approach. Drawing more from your pension during your lifetime, particularly within lower income tax bands, may reduce the amount exposed later. Our guide to building a retirement income plan explains how to structure withdrawals across different assets.

Step 6: Consider Gifting Surplus Income

If you draw more pension income than you need, regular gifts made from surplus income can be immediately free of inheritance tax, provided they come from income rather than capital and do not reduce your standard of living. Keeping clear records of your income, spending and gifts each year is essential if you want this exemption to stand up.

Step 7: Cover the Liability With Life Insurance Written in Trust

For some families, the simplest solution is life insurance written in trust, so the payout sits outside the estate and can be used to pay the inheritance tax bill. This can be particularly useful during your IHT tail years, when your worldwide estate remains exposed.

Step 8: Bring It All Together in Your Estate Plan

Finally, make sure your pension decisions fit with your will, your other assets and your wider goals for your family. Pensions are now one piece of a bigger picture, and our guide to wealth preservation strategies shows how the different pieces work together.

Other Options Worth Discussing With an Adviser

Beyond the core action plan, several other options may suit some expats. Each comes with trade-offs, so treat these as topics to discuss rather than steps to take automatically.

Taking Tax-Free Cash Before Age 75

You can usually take up to 25% of your pension as a tax-free lump sum, subject to an overall limit of £268,275 for most people. Taking it before 75 and then spending or gifting it can reduce what remains exposed, although money left in your bank account still counts towards your estate.

Leaving Your Pension to Your Spouse or to Charity

Pensions left to a spouse or civil partner remain exempt in most cases, while pensions left to charity can also be free of inheritance tax. However, leaving everything to your spouse usually delays the tax until the second death rather than removing it.

Considering a Joint Life Annuity

Certain joint life annuities, where a dependant's or nominee's annuity is bought together with your own, are excluded from the new rules. For some couples, securing part of their pension as guaranteed income may now be more attractive than it once was.

Common Mistakes to Avoid

• Assuming living abroad protects a UK pension. UK registered pensions remain in scope even for those who are not long-term UK residents.
• Transferring to a QROPS without full analysis. The 25% overseas transfer charge and the new rules can make a transfer counterproductive.
• Leaving expression of wish forms untouched for years. Out-of-date nominations can send money to the wrong people or create avoidable tax.
• Spending other assets first by default. The old approach of preserving your pension at all costs may now increase your family's tax bill.
• Waiting for April 2027 before acting. Many of the most effective options take time to put in place.

How Benjamin Sharvell IFA Helps UK Expats Prepare for April 2027

At Benjamin Sharvell IFA, I help UK and European expats in Ho Chi Minh City, Hanoi, Da Nang and across Vietnam make sense of their pensions and plan for the future. Being based in Vietnam means I understand both how UK rules follow you abroad and how life and regulations work here.

When it comes to pensions and inheritance tax, my support typically includes:

• Reviewing all of your pensions, including UK and overseas schemes, and estimating their inheritance tax exposure from April 2027
• Confirming your residence position and how long your IHT tail is likely to last
• Designing a tax-efficient withdrawal strategy that balances your income needs with what you want to pass on
• Reviewing nominations, wills and protection, including life insurance written in trust where appropriate
• Working alongside tax and legal specialists in the UK and Vietnam when your situation requires it

Act Before the Rules Change

The April 2027 reforms mark the end of pensions as an easy way to pass on wealth free of inheritance tax. For UK expats, the picture is more complex still, because your residence history, the type of pension you hold and where your family lives all affect the outcome. Yet the change is not a reason to panic. With a clear list of your pensions, an understanding of your residence status and a few well-timed decisions, many families can significantly reduce the impact.

If you would like to understand how inheritance tax on pensions will affect you and what you can do before April 2027, contact me today to arrange a consultation. I will review your position and help you build a plan that protects your family.

This article is for general information only and does not constitute financial, tax or legal advice. The rules described are based on information published by HMRC and may change, so please seek personalised advice before acting.

Frequently Asked Questions About Inheritance Tax on Pensions

1. When does inheritance tax on pensions start?

It applies to deaths on or after 6 April 2027. If someone dies before that date, the current rules apply, even if the pension is paid to their beneficiaries later.

2. Will my pension be subject to inheritance tax if I live in Vietnam?

It depends on your residence history and where your pension is held. If you are a long-term UK resident, all your pensions are in scope. If you are not, overseas schemes are outside UK inheritance tax, but UK registered pensions such as SIPPs are still included.

3. Is a pension left to my spouse subject to inheritance tax?

Usually not, because the spouse and civil partner exemption still applies. However, the exemption can be capped at £325,000 if you are a long-term UK resident and your spouse is not, and the pension may be taxed when your spouse later dies.

4. Does a QROPS avoid inheritance tax on pensions from 2027?

Not if you are a long-term UK resident when you die, because QROPS are within scope in that case. A QROPS can keep pension funds outside UK inheritance tax for someone who is not a long-term UK resident, but transfers often trigger a 25% overseas transfer charge.

5. Can my beneficiaries pay both income tax and inheritance tax on my pension?

Yes, if you die at 75 or over. Inheritance tax is taken first, and your beneficiaries then pay income tax at their marginal rate on what they withdraw, although not on the part used to pay the inheritance tax.

6. Who pays inheritance tax on a pension after death?

Your personal representatives are responsible for reporting and paying it, and beneficiaries can become jointly liable. Executors can ask the pension scheme to withhold up to 50% of benefits or to pay the tax directly to HMRC from the pension.