The Finance Act 2026 received Royal Assent on 18 March 2026. From 6 April 2027 it brings most unused defined contribution pension funds, and most pension death benefits, into a person’s estate for inheritance tax. That is not a future planning point. It is a present file-checking one, because the advice written to justify a client’s current pension and estate strategy was, in a great many cases, written on the opposite assumption.
The change itself is well covered elsewhere, so briefly: from April 2027, most undrawn defined contribution pots and lump sum death benefits count towards the deceased’s estate for IHT, generally at 40% above the available nil-rate bands. Benefits passing to a spouse or civil partner remain exempt, as do gifts to charity, and death-in-service lump sums are excluded entirely, an exclusion widened during the Bill’s passage to cover non-active members as well as active ones. Scheme pensions and most defined benefit entitlements sit outside the change, because they generally cannot be passed on as a fund in the first place. Pension scheme administrators, not executors, will be responsible for reporting and settling the IHT due before benefits reach a beneficiary.
That last point matters more to a file checker than it first looks. It is an administrative mechanism, and mechanisms create timing and process risk independently of whether the underlying advice was right.
The assumption most files were built on
For the better part of two decades, “spend other assets first, leave the pension until last” has been close to a reflex in retirement and estate planning. It was correct advice under the old rules, for the overwhelming majority of clients with unused pension funds and other assets to draw on. Files across the market will contain fact-finds, cashflow models and suitability reports that say, in substance, exactly that: draw taxable investments and ISAs in retirement, preserve the pension, because the pension passes free of IHT.
From April 2027 that reasoning is not just outdated. For an estate above the nil-rate bands, it can produce the wrong outcome by design, since the funds being preserved are precisely the ones that will now attract the tax the strategy was meant to avoid. A client who dies after 75 with unused pension funds already faces income tax on what beneficiaries draw. Layer inheritance tax on top of that and some estates face a combined effective rate approaching two-thirds of the fund. The strategy that was correct in 2022 can be the strategy that costs a client’s family the most in 2028, and nothing about the file will say the goalposts moved unless someone has been back to look.
Where this lands in a file review
Three questions belong in every file check for a client with a meaningful unused pension fund and an estate above, or close to, the nil-rate bands.
Has the file been revisited since the change was legislated? The policy was announced in the October 2024 Budget and became law in March 2026. A suitability file dated after March 2026 that still recommends preserving the pension as an IHT-efficient strategy, with no discussion of the change, is not automatically wrong, but it is a file with a gap that needs an answer on record, not an assumption in the reviewer’s head.
Is the expression of wishes current, and does the file say when it was last checked? The change does not require a new nomination form in every case, but it changes what a sensible nomination looks like for many clients, particularly where spousal exemption can now be used more deliberately, or where a discretionary trust structure that made sense under the old rules needs revisiting under the new ones. A file that shows an expression of wishes completed once, years ago, with no review trigger attached to it, is now a materially higher-risk gap than it was before April 2027, because the value of getting it wrong has gone up.
Does the ongoing advice process have a trigger for this at all? Under the Consumer Duty, firms are expected to act on information that changes what good outcomes look like for existing clients, not only new ones. A firm-wide legislative change of this scale is about as clear a trigger as exists. The file evidence a supervisor will look for is not a general policy statement that the firm is aware of the IHT change; it is proof that individual clients whose plans depended on the old assumption were identified and contacted.
What this does not tell a firm to do
We are not going to tell a firm how to advise on this, and a compliance function reviewing files should be equally careful not to. The right drawdown order for a given client depends on their whole estate, marital status, health, and what they want their money to do, and there are entirely legitimate reasons a pension might still be preserved rather than spent. The compliance question is narrower and more useful than “was the strategy right”: it is whether the file shows the change was considered at all, on the record, for the clients it actually affects. A file that shows the adviser considered the change and had good reason to keep the existing strategy is a strong file. A file that is silent on a change this size, for a client this exposed, is not, regardless of whether the original advice happens to still hold up.
This is also, mechanically, a sweep problem before it is an individual file problem. The clients who need this conversation are identifiable now, by estate value and unused pension fund size, well ahead of any annual review cycle reaching them naturally. Firms running a DC back-book review ahead of April 2027 are, in effect, running the file-checking equivalent of the fair value review the Consumer Duty already expects: has the file kept pace with a known change that affects the outcome it recommends.
Where this leaves a firm
Four questions worth asking of the back book now, not in March 2027:
- Which clients have an unused pension fund and an estate likely to be within reach of the nil-rate bands once the fund is included?
- Does each of those files show the Finance Act 2026 change was discussed, and when?
- Is the expression of wishes on file current, and does the file record when it was last checked against the client’s actual wishes?
- If nothing has changed for a client, does the file say why, or does it simply not mention the point?
A firm that can answer all four for its exposed clients has done the substantive part of the work the change requires. A firm that can only answer the first has a sweep to run, and eighteen months less time to run it in than it looks.
A note on this piece
This is commentary, not regulatory or tax advice, and it does not constitute compliance sign-off for any firm or file. Descriptions of the Finance Act 2026 and related guidance are our reading of what has been published; firms should refer to HMRC and FCA materials directly and take their own advice before acting. If you are running, or planning, a back-book review ahead of April 2027 and want to talk about how Frank’s DB and DC file review modules could support it, we are happy to have that conversation.