From 6 April 2027, unused pension funds and certain pension death benefits are due to be brought within the value of an individual’s estate for inheritance tax (IHT) purposes. This is a significant change for many individuals, but it is likely to be particularly relevant for business owners, landowners and farming families who hold commercial, agricultural or development land within a Self-Invested Personal Pension (SIPP) or Small Self-Administered Scheme (SSAS).
The value to be included within an individual’s estate is referred to as “notional pension property” (NPP). Broadly, this comprises the residual value of funds held in a pension pot and lump sum death benefits.
Historically, most pensions have sat outside an individual’s estate for IHT purposes. For that reason, pensions have often formed an important part of succession and tax planning, with individuals commonly being encouraged to maximise pension contributions where appropriate. SIPPs and SSASs have also been popular vehicles for holding business premises, farmland and other commercial property, because of the income tax, capital gains tax and wider pension planning advantages they can offer.
With April 2027 approaching, this is an area where early review is important.
Due to tax efficiency, SIPPs and SSASs have commonly been used to hold property which, if held directly by an individual, may have qualified for Business Property Relief (BPR) or Agricultural Property Relief (APR). BPR and APR are IHT reliefs, which can significantly reduce the IHT payable on qualifying business or agricultural assets held within an individual’s estate. Following changes introduced from 6 April 2026, the government has capped 100% IHT relief for APR and BPR at a combined total of £2.5 million per individual. Any qualifying business or agricultural assets above this threshold receive 50% relief (resulting in an effective IHT rate of 20%).
HMRC’s recent Technical note: Inheritance Tax on pensions indicates that APR and BPR are not available against NPP because the deceased is not treated as owning the underlying agricultural or business assets within the pension scheme. This may result in a very different IHT outcome for qualifying business and agricultural property held personally compared with similar property held through a SIPP or SSAS.
Simon owns £5 million of property which would qualify for APR and BPR (the Relievable Property).
If Simon holds the property personally
Simon’s estate includes £5 million of Relievable Property. Assuming the property benefits from the £2.5 million allowance for APR and BPR (and ignoring the nil rate band and any other available exemptions), the remaining £2.5 million will be subject to IHT at the reduced effective rate of 20%, resulting in an IHT liability of £500,000 on the Relievable Property.
If Simon holds the property within a SIPP or SSAS
Under the rules applying before 6 April 2027, pension property generally sits outside Simon’s estate for IHT purposes and is not subject to IHT on his death. There should be no IHT due on the Relievable Property.
On that basis, there is currently a significant IHT advantage in holding assets, including Relievable Property, within a pension arrangement.
If Simon holds the property personally
This analysis is not expected to change. Simon’s estate should still benefit from the £2.5 million APR and BPR allowance, leaving £2.5 million subject to IHT at the reduced effective rate of 20% (ignoring the nil rate band and any available exemptions). The IHT liability on the Relievable Property would therefore remain £500,000.
If Simon holds the property within a SIPP or SSAS
The value of the pension assets held within the SIPP or SSAS will form part of Simon’s NPP and be included in the calculation of his estate for IHT purposes. Because Simon is not treated as owning the underlying property itself, APR and BPR are not expected to be available. IHT will be charged at 40% on the £5 million of Relievable Property, resulting in an IHT liability of £2 million.
The potential difference is stark.
Any NPP passing to a spouse, civil partner or charity is expected to benefit from the existing spouse, civil partner and charity exemptions and should not be subject to IHT. For some individuals, this may provide a useful short-term planning option and any expression of wishes form should be reviewed. However, it will not necessarily solve the issue entirely, particularly where wealth is ultimately intended to pass to the next generation.
For those who hold trading premises, farmland, let agricultural land or development land within a SIPP or SSAS, it may be worth considering whether the current structure remains appropriate. In some cases, extracting property from the pension scheme or restructuring ownership may improve the IHT position, although this is unlikely to be straightforward and may trigger other tax consequences.
Key considerations include whether the property would qualify for APR or BPR if held personally, the relevant minimum ownership periods, the pension scheme’s ability to meet future tax liabilities, and whether existing expression of wishes forms remain suitable. Where pension benefits can pass to a surviving spouse or civil partner free of IHT, there may also be scope for further lifetime planning by the survivor. Any changes should be considered carefully and supported by professional advice.
Reviewing the position now gives business owners, landowners and farming families time to assess potential IHT exposure, explore alternative ownership structures, and ensure pension death benefit nominations and estate planning documents align with wider succession objectives. We recommend monitoring announcements from the forthcoming Budget on 28 October 2026 and, if the proposed changes to pensions remain in place, taking the appropriate advice.
