For decades, UK pension funds occupied a privileged position in estate planning. Assets held inside a pension wrapper sat outside the taxable estate, passed to the next generation free of inheritance tax, and could be drawn down by beneficiaries at their own pace and marginal rate. For internationally mobile families, this made UK pensions a cornerstone of long-term wealth planning.
From April 2027, that position changes fundamentally.
What the reform actually means
Under rules confirmed by the UK government, pension funds will be brought within the scope of inheritance tax. The headline rate of 40% applies above the nil-rate threshold. But the real exposure emerges when you look at what happens next: a beneficiary who draws down inherited pension funds also pays income tax on those withdrawals at their marginal rate, which for higher earners sits at 45%. Applied in sequence, the combined tax burden on inherited pension assets can reach 91%.
This is not a marginal adjustment. It is a structural change to how UK pension wealth transfers between generations.
Why cross-border families face a particular challenge
For families whose lives span more than one country, the picture is more complex than for purely UK-resident households. A pension holder living in Italy, Portugal, the UAE or elsewhere may have assumptions about UK tax exposure that no longer hold. A beneficiary resident outside the UK may face both UK inheritance tax on the pension and local tax obligations on the same assets, depending on the jurisdiction and any applicable treaty.
The interaction between UK domestic rules and the tax regimes of other countries is not always straightforward. The relief mechanisms that exist, and the planning options available before April 2027, depend heavily on individual circumstances: the size of the pension, the pension holder’s residence and domicile status, the beneficiaries’ own positions, and the overall structure of the family’s wealth.
There is also a timing dimension that matters. Some of the options available today, including certain nominations, trust arrangements and drawdown decisions, require action before the new rules take effect. The window is not infinite.
The planning moment is now
This is not a situation where waiting for further clarity is the prudent course. The legislation is confirmed. The direction of travel is clear. Families who hold UK pension assets as part of a broader cross-border wealth picture need to understand their exposure now, not in 2026.
That means mapping the full position: where the pension sits, who the beneficiaries are, what their tax positions look like, and what options remain available before April 2027 changes the landscape.
Konfido works with clients whose financial lives span multiple countries. If UK pension assets are part of your picture, this is the moment to assess the impact and understand what, if anything, should move before the window closes.
Operating across borders and not sure where the gaps are?
Request a Cross-Border Checkup — a 30-minute look at your accounts, payments and coordination across jurisdictions.
Konfido Ltd is a financial technology company, not a bank. It coordinates banking, payment, e-money, investment and crypto-asset services provided by licensed and regulated partners under their own terms and conditions.
