UK Pensions and Inheritance Tax: What the 2027 Changes Mean If You Live in the US

From 6 April 2027, most unused UK pension funds will count toward a person’s estate for UK inheritance tax, a change that can matter a great deal for US residents with UK pensions.

For years, UK pensions have been one of the most tax-efficient ways to pass wealth to the next generation.

If you built up a SIPP or other UK pension during time spent living or working in the UK, you may have assumed those assets could pass to beneficiaries outside your estate for UK inheritance tax purposes.

That changes from 6 April 2027.

At the same time, the UK has already replaced domicile with residence as the key test for inheritance tax exposure. Together, these changes could materially affect many US-based individuals with UK pensions.

If you have a UK pension and now live in the US, this is worth understanding now rather than later.

Does this affect you?

This article is particularly relevant if:

• You lived or worked in the UK for a meaningful period
• You built up a SIPP or other UK pension
• You now live in the US
• You expect to leave pension assets to your spouse, children or other beneficiaries

If that sounds like you, the 2027 rules may matter.

The pension change: what’s happening?

Until now, most defined contribution pensions, including SIPPs, personal pensions and SSAS arrangements, have generally sat outside a person’s estate for UK inheritance tax purposes.

From 6 April 2027, that changes.

Under the Finance Act 2026, most unused pension funds and pension death benefits will be included in a person’s estate for UK inheritance tax purposes.

In practical terms, this means pension assets that were previously viewed as highly efficient estate planning tools may now create inheritance tax exposure.

A few key points:

• The rules apply to deaths on or after 6 April 2027
• Standard exemptions still apply, including certain spouse and civil partner exemptions
• The nil-rate band (£325,000) still applies
• Most estates will still pay no UK inheritance tax

For estates that are affected, administration is also becoming more complex. Executors may need to identify all pension arrangements, obtain valuations, and coordinate tax payments before probate is complete.

Certain non-UK pension arrangements may also be affected, depending on structure and residence status.

Domicile is gone, residence matters now

The pension changes do not operate in isolation.

From 6 April 2025, the UK moved from a domicile-based inheritance tax system to a residence-based system.

The key concept is now whether someone is a long-term UK resident.

Broadly speaking, you may fall into this category if you were UK tax resident for at least 10 of the previous 20 tax years.

If you meet that threshold, your worldwide assets, including UK pensions caught by the 2027 changes, may fall within UK inheritance tax.

Importantly, leaving the UK does not necessarily remove exposure immediately.

A tail period of between three and ten years can apply after departure, depending on your residence history.

That means someone who left the UK several years ago may still have ongoing exposure.

The US angle: why this gets more complicated

For US residents, this is where things become more complex.

You may be dealing with multiple tax regimes at the same time:

• UK inheritance tax
• US estate tax
• US income tax rules on foreign pension-related investments
• Ongoing reporting requirements such as FBAR and FATCA

The US-UK Estate and Gift Tax Treaty can also affect which country has taxing rights and whether relief from double taxation is available.

In some cases, treaty protection may reduce the practical impact of UK inheritance tax exposure, but this depends heavily on individual circumstances and is not automatic.

Separately, many investments held within UK pensions can create additional US tax reporting complexity, particularly for US citizens and green card holders.

What this means in practice

A few actions are worth considering now.

Review beneficiary nominations. Outdated nomination forms can create unnecessary complications and may lead to outcomes that no longer reflect your wishes.

Understand your UK residence history. Your exposure may depend heavily on how long you lived in the UK and when you left.

Review your pension structure. Not all pension arrangements are treated the same, particularly across multiple jurisdictions.

Don’t assume old planning still works. Strategies that made sense under previous rules may need reviewing.

HMRC’s final operational guidance is expected relatively close to implementation, which leaves a fairly short window for planning. That is why now is a good time to review your position.

For internationally mobile families, pension planning is no longer just about retirement income. It is increasingly an estate and tax planning issue across multiple jurisdictions.

Disclaimer: Some of the content of this communication was provided by third parties of Rosefinch. We have not verified the information contained herein, but we believe the content is reliable. None of this content should be construed as legal, accounting or tax advice. Many legal issues, accounting or tax regulations are complex and often have highly-individualized requirements, you should seek the advice of a competent professional if you have specific questions.