From 6 April 2027, most unused UK pension funds will be subject to UK inheritance tax, even for expats living in Spain.
Discover how these upcoming changes could impact your estate and how to prepare with our expert wealth management insights.
If you have been keeping your UK pension to leave to your children, April 2027 is a reason to check that plan. Living in Spain does not, by itself, put a UK-established pension outside UK inheritance tax.
From 6 April 2027, most unused pension funds and pension death benefits will count towards your estate for UK inheritance tax. In many cases, inherited pension payments can also face income tax. One tax does not replace the other, but not every family will pay both.
The question worth asking is simple: after the taxes that apply, how much could your family keep?
From 6 April 2027, most unused pension funds and pension death benefits are included in your estate for UK inheritance tax purposes if the member dies on or after this date. The current inheritance tax rules apply for deaths occurring before this date, regardless of when the pension is paid out.
Many pension pots that currently sit outside inheritance tax will be included in future. This can cover money left in a personal pension, including money still invested while you take withdrawals. Some death benefits already fall within inheritance tax today.
This is a change to pension wealth passed on after death. It is not a new 40% tax on your monthly pension income. Naming your children as beneficiaries will not, by itself, keep the pension outside inheritance tax.
It can be. HMRC says relevant benefits in UK-established pension schemes are within the new rules even if the member is no longer a long-term UK resident. Whether tax is actually due depends on the benefits, the available allowances and who inherits.
Imagine you have lived in Spain for 12 years, have a £400,000 pension in a UK-established scheme and want to leave it to your children. Those 12 years abroad do not, by themselves, exempt that pension. Your wider estate still needs checking before anyone can calculate a bill.
They can. There are two separate checks: your UK residence history and where your pension scheme is established.
Since April 2025, UK inheritance tax on overseas assets has mainly depended on long-term UK residence rather than domicile. Broadly, the test looks at whether you were UK tax resident in at least 10 of the previous 20 tax years. Status can continue for three to ten tax years after leaving, with transitional exceptions.
Even if you are no longer a long-term UK resident, relevant benefits in a UK-established scheme can still be included. Ask your provider where the scheme is established, rather than assuming your Spanish address settles the question.
Consider someone leaving £300,000 of other assets and a £200,000 pension to adult children.
Assume all the other assets are within UK inheritance tax, the pension is outside it under the current rules but included after the change, and the full £325,000 standard allowance is available.
UK inheritance tax calculation | Current treatment in this example | After the change |
Other assets included | £300,000 | £300,000 |
Pension included | £0 | £200,000 |
Total included | £300,000 | £500,000 |
Amount above the £325,000 allowance | £0 | £175,000 |
Inheritance tax at 40% | £0 | £70,000 |
This example assumes zero relevant debts, earlier gifts, extra allowances, or exemptions. This is a UK illustration and does not calculate Spanish tax obligations.
That is an increase from £0 to £70,000 in inheritance tax on the combined estate. It does not mean the full £70,000 is deducted from the pension: the bill is allocated between the different parts of the estate.
This example assumes no relevant debts, earlier gifts, extra allowances or exemptions. A qualifying home left to direct descendants, or unused allowances from a late spouse or civil partner, could change the result. The home allowance reduces for estates above £2 million. Any income tax on the inherited pension must be checked separately. This is not a Spanish tax calculation.
To estimate your estate’s inheritance tax position, use the PCC UK-Spain Pension Inheritance Tax Calculator.
You will need to input your UK pension value, your other asset values, and your residency status.
The tool generates an estimated tax liability comparison for 2027, which you can bring to a consultation.
Yet five years later, I’ve noticed something I genuinely didn’t expect: my own tolerance for the summer heat has changed.
And during a recent trip to Menorca to visit some of our long-term clients, I realised I wasn’t the only one thinking about it.
Several independently told us that they were considering moving again.
Some were thinking about Ireland or the UK, while another was considering Galicia in northern Spain.
There were different reasons behind it, of course. But two themes kept coming up: hotter, more humid summers becoming harder to tolerate, and the rising cost of living and property in places such as Menorca.
Nobody was saying moving to Spain had been a mistake.
Quite the opposite. These are people who have built lives here and enjoyed many years of living abroad.
Their lives and priorities are simply changing.
And it made me think about people who are retiring to Spain today.
Yes, inherited pension payments face UK inheritance tax on the estate alongside potential income tax for the beneficiary. The separate income tax rules for inherited pension payments apply based on the age of the deceased.
Under the UK rules, if you die aged 75 or over, inherited pension withdrawals and most lump sum death benefits are normally taxable as the beneficiary’s income. The rate depends on their circumstances.
If you die before 75, many modern inherited pension withdrawals can be free of UK income tax if the conditions are met. For unused funds that have not yet been accessed, setting up inherited drawdown generally needs to happen within the relevant two-year period. Lump sums have separate timing and allowance conditions. Some benefits, such as a dependant’s scheme pension, are normally subject to income tax at any age.
So “under 75” does not mean “no inheritance tax”, and it does not guarantee every payment is income-tax-free.
No. Where a pension scheme pays the inheritance tax attributable to the benefits directly to HMRC through the new payment process, any UK income tax due applies to the benefits left after that deduction.
For a simple UK-only illustration, assume £100,000 of pension benefits is fully exposed to inheritance tax at 40%. The member died aged 75 or over, the scheme pays £40,000 to HMRC through that process, and all the remaining £60,000 is taxable at a beneficiary income tax rate of 40%.
Income tax is then £24,000, leaving £36,000 for the beneficiary. The combined cost is £64,000, not £80,000. This is an illustration, not a standard tax rate or a calculation for a beneficiary living in Spain.
Each beneficiary will receive a different amount after tax. The final calculation depends on their individual country of residence and the specific terms of the UK tax treaty with that country. The beneficiary’s residence and the type of pension payment need checking alongside the inheritance tax position.
The UK-Spain tax treaty generally assigns pensions and similar payments to the recipient’s country of residence, with separate rules for government-service pensions. How a particular inherited benefit is classified and taxed still needs checking. Being free of UK income tax does not establish that it is free of Spanish tax, and an income tax treaty rule does not automatically remove UK inheritance tax.
For a family spread across both countries, the useful comparison is what each person could keep after the rules that apply to them, not a single UK headline percentage.
It can be. Pension benefits passing to a spouse or civil partner may qualify for inheritance tax exemption. An unmarried partner does not qualify for that exemption.
There can be a limit where the deceased is a long-term UK resident and the spouse or civil partner is not. Both people’s status and earlier transfers need checking. An exemption on the first death also does not settle the position when the survivor later dies.
Some benefits are excluded from the new rules, including qualifying death-in-service payments, dependants’ scheme pensions and certain survivor annuities bought with the member’s lifetime annuity. An inherited investment pot is not automatically one of these excluded benefits. Ask the provider exactly what would be paid on death.
Not automatically. For long-term UK residents, relevant benefits in certain overseas pension schemes can also fall within the new rules. For someone who is not a long-term UK resident, whether the scheme is established inside or outside the UK matters.
A transfer needs its own review of tax consequences, costs, benefits and suitability. Moving a pension abroad should not be treated as a guaranteed inheritance tax fix.
Not simply because the rules are changing. A withdrawal can create an immediate tax bill, and money taken out and kept is still an asset. You could pay tax now without improving what your family receives later.
The planning priority is to look at your pension alongside your other savings, your retirement spending and the people you want to provide for. Reducing one possible future tax bill is not a good result if it leaves you short of income or creates a larger tax cost elsewhere.
Start with the information that makes a useful comparison possible. You do not need to make a withdrawal or transfer to begin.
Treating the pension in isolation is the first mistake. A pension preserved for inheritance now needs to be considered alongside the rest of the family’s finances.
The second is treating a move to Spain, a beneficiary nomination or an overseas transfer as proof that no UK tax applies. Each answers a different question, and none is a universal exemption.
The third is rushing to withdraw money based on a headline rate. Compare the family’s overall after-tax position and your own income needs before changing a plan that has taken years to build.
Living in Spain does not exempt a UK-established pension from UK inheritance tax. The rules assess where the pension scheme is established and your long-term UK residence history.
The new rules apply to pension members who die on or after 6 April 2027.
Inherited pension payments are subject to UK inheritance tax and can also face income tax depending on the age of the deceased and the beneficiary’s tax residence.
If you have spent years saving into a pension with the intention of passing unused money to your family, the April 2027 rules are a reason to revisit the plan, not a reason to panic.
A useful review should answer three questions: which pension benefits and other assets could be exposed, what your intended beneficiaries might receive after tax, and whether a change would help without weakening your retirement income.
Private Client Consultancy helps people living abroad plan their pensions, investments and retirement finances. Arrange a review with PCC to discuss your pension alongside your wider estate and your family’s circumstances in the UK and Spain. Every step with us is fully complimentary, from the first call through to the delivery of your plan. No fees, no adviser charges, nothing. We believe we have to earn the right to work with you, and a review is how we start. Bring your pension statements, beneficiary nominations and a summary of your other assets. If you have used an estate calculator, bring that result too.
The aim is to understand what needs attention before you make a withdrawal, transfer or other change, rather than discover later that reducing one tax created a different problem.
General information, not personal financial or tax advice. Rules checked on 11 October 2026. Examples are illustrative and do not calculate Spanish tax. Further HMRC implementation guidance is expected before April 2027.
Fadi Syoufi
Fadi brings a practical, no-nonsense approach to wealth management, shaped by his background running his own business in the tech sector.
He understands the reality of making important decisions with your own money on the line. He is genuinely curious about his clients’ stories and the specific situations they are navigating.
Fadi prioritises transparent, jargon-free conversations because clear information makes financial decisions easier.
Finding a solution that fits your life and makes a tangible difference is his primary focus.
Fluent in English and Arabic, and active across European networks, Fadi supports clients living and planning across borders.
Outside of the office, you will usually find him attending business events or keeping active with sport.
UK State Pension update for EU residents
From April 2026, the rules around voluntary National Insurance contributions for people living outside the UK are changing.
If you live in the EU and expect to rely on the UK State Pension, it may be worth reviewing your position while current options remain available.
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