UK Pension Inheritance Tax Changes: What British Expats in Spain Need to Review Before 2027
- Official sources checked
- Written by Sue Berry
- Practical guidance
From 6 April 2027, most unused UK pension funds and pension death benefits will be included when calculating the value of a person’s estate for UK Inheritance Tax. British expats living in Spain may need to review pension nominations, wills, residency history and the instructions left for their families.
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The Quick Answer
Always Consult a Professional Before Taking Any Actions - This Post is for Guidance Only!
From 6 April 2027:
most unused UK pension funds and pension death benefits will be included in the deceased person’s estate for UK Inheritance Tax;
- personal representatives will normally be responsible for reporting and paying any tax due
- pension beneficiaries may also have responsibilities connected with the pension benefits they receive
- death-in-service benefits from registered pension schemes will remain outside the estate
existing income-tax rules on inherited pensions will continue to apply alongside the new Inheritance Tax rules.
Living in Spain does not automatically remove a British expat from UK Inheritance Tax.
The answer depends partly on the person’s UK residence history, where assets are situated and how the pension is structured.
The Old Domicile Rules Have Changed
From 6 April 2025, the UK moved away from relying mainly on domicile for Inheritance Tax and introduced a residence-based system.
A person can be treated as a long-term UK resident if they have been UK resident for at least 10 of the previous 20 tax years.
Where that applies, overseas assets may also come within the UK Inheritance Tax net. A period of continuing exposure may remain after the person leaves the UK, depending on their residence history.
This is important for British people who have only recently retired to Spain.
Moving abroad does not necessarily remove UK Inheritance Tax exposure immediately.
Someone who spent most of their adult life in the UK and moved to Spain a few years ago may still be within the long-term UK residence rules.
Why This Matters
The UK has changed the future Inheritance Tax treatment of pensions.
For deaths occurring on or after 6 April 2027, most unused pension funds and pension death benefits will be brought into the value of the deceased person’s estate for UK Inheritance Tax purposes.
The change has now been legislated through the Finance Act 2026. It is no longer simply a proposal or consultation announcement.
Historically, many discretionary pension arrangements usually sat outside the estate for Inheritance Tax purposes. This made pensions useful not only for retirement income, but also as a way of passing remaining wealth to children or other beneficiaries.
That planning assumption will need to be reconsidered.
What Will Be Included from April 2027?
The new rules broadly bring most unused pension funds and pension death benefits into the estate.
This may include:
- uncrystallised pension funds
- money remaining in pension drawdown
- certain lump-sum death benefits
- pension benefits payable to nominated beneficiaries
- other unused benefits that fall within the legislation
The pension value may therefore have to be combined with assets such as:
- UK property
- Spanish property
- savings
- investments
- valuable personal possessions
- business interests
- life-insurance proceeds that form part of the estate
- certain gifts made before death
The exact calculation will depend on the pension type and the individual’s wider circumstances.
What Remains Outside the Estate?
Not every pension-related payment is being brought into the new regime.
The government has confirmed that death-in-service benefits from registered pension schemes will remain outside the estate for Inheritance Tax purposes from 6 April 2027.
Certain continuing annuities and exempt pension benefits may also remain outside the relevant pension property calculation.
This distinction matters because people often use the general word “pension” to describe several very different benefits.
A workplace death-in-service payment is not necessarily treated in the same way as an unused personal pension pot.
Personal Representatives
The deceased person’s personal representatives will normally be responsible for reporting and paying any UK Inheritance Tax due on unused pension funds and pension death benefits.
A personal representative may be:
- an executor named in a will
- an administrator where there is no valid will
- a professional appointed to deal with the estate
The original proposal placed more responsibility on pension scheme administrators, but the government changed this after consultation.
From April 2027, the main responsibility will sit with the personal representatives.
Pension providers will still need to supply information and cooperate with the estate.
Where Inheritance Tax is expected to be due, personal representatives may be able to direct a pension provider to:
- withhold part of the pension benefit temporarily
- pay the relevant Inheritance Tax to HMRC
- release the remaining funds once the position is settled
The legislation includes arrangements allowing up to 50% of certain taxable benefits to be withheld for a limited period in qualifying circumstances.
Beneficiaries
Pension beneficiaries may also have responsibilities.
Once appointed to receive a pension benefit, a beneficiary may become jointly responsible for the Inheritance Tax attributable to the benefit they receive.
This means families should not assume that the pension provider will simply pay everything directly to beneficiaries without further questions.
The executor, pension provider and beneficiary may all need to exchange information before the estate can be finalised.
Could the Pension Face Both Inheritance Tax and Income Tax?
Potentially, yes.
The new Inheritance Tax treatment does not remove the existing income-tax rules for inherited pensions.
Broadly:
where the pension owner dies before age 75, certain pension death benefits are usually free from Income Tax, subject to conditions and allowances;
where the pension owner dies aged 75 or over, inherited pension payments are generally taxable as income for the recipient;
late payment and other special circumstances can also change the tax treatment.
HMRC’s technical guidance explains that where Inheritance Tax has been paid in relation to pension death benefits, the part corresponding to that tax and associated interest will not also count as taxable pension income for the beneficiary.
Even so, the interaction can be complicated.
For an expat beneficiary living in Spain, Spanish tax residence may also affect how inherited pension income is reported.
Important — Read Before You Act
The April 2027 pension changes could significantly affect the way British expats in Spain organise their retirement income and estate plans.
Do not withdraw money from a pension, transfer assets, make substantial gifts or change property ownership solely to avoid a possible future Inheritance Tax charge.
A decision that reduces UK Inheritance Tax could create other consequences, including:
- an immediate UK Income Tax bill
- Spanish Income Tax implications
- loss of future pension growth
- reduced retirement income
- less money available for care or emergencies
- Spanish gift or inheritance tax consequences
- changes to means-tested benefits
- difficulties between beneficiaries
- additional professional and administrative costs
The correct approach depends on your:
- pension type
- pension value
- age and health
- retirement-income needs
- UK residence history
- Spanish tax residence
- UK and Spanish property
- wills and beneficiary nominations
- intended beneficiaries
- overall estate value
Living in Spain does not automatically remove an estate from UK Inheritance Tax. Spanish inheritance tax may also apply depending on the deceased, the beneficiary, the assets and the relevant autonomous community.
Seek regulated, cross-border advice from professionals who understand UK pensions, UK Inheritance Tax and Spanish succession tax before making significant changes.
What To Do — Step by Step
List Every Pension Make a complete list of all pension arrangements, including: personal pensions; workplace pensions; SIPPs; pensions already in drawdown; older pension policies; overseas pension arrangements; death-in-service benefits. Record the provider, plan number, pension type, approximate value and contact details.
Identify the Type of Pension Check whether each arrangement is: defined contribution; defined benefit; drawdown; annuity; death-in-service cover; overseas pension; another type of retirement benefit. The new rules will not affect every pension-related payment in exactly the same way.
Check the Current Value Obtain an up-to-date valuation for each pension. Record: total fund value; amount already withdrawn; amount remaining in drawdown; tax-free cash already taken; guaranteed benefits; death benefits; any penalties or restrictions. The pension should then be considered alongside the rest of the estate.
Review Beneficiary Nominations Contact each pension provider and check the current expression-of-wish or beneficiary nomination. Make sure: the correct people are named; former partners have been removed where appropriate; names and addresses are current; nominated percentages still reflect your wishes; children or other beneficiaries are correctly identified. A pension nomination and a will perform different jobs, so both should be reviewed.
Estimate the Full Estate Value Prepare a broad estimate that includes: unused pension funds; UK property; Spanish property; savings; investments; business interests; valuable possessions; life-insurance proceeds that form part of the estate; certain lifetime gifts; other assets. Also record debts, mortgages and liabilities that may be deductible. The potential Inheritance Tax position must be considered across the whole estate rather than the pension alone.
Record Your UK Residence History Write down where you were tax resident for each of the previous 20 tax years. Keep supporting evidence such as: the date you left the UK; Spanish residence certificates; TIE documents; Spanish tax returns; UK tax returns; employment records; travel information; property records. This may help establish whether the UK’s long-term residence rules apply.
Review Your UK and Spanish Wills Check that your wills: reflect your current wishes; name suitable executors; cover the intended assets; do not accidentally revoke one another; work alongside pension nominations; identify beneficiaries clearly; can be located by your family. Where separate UK and Spanish wills are used, ask a qualified cross-border professional to confirm that they work together.
Ask Pension Providers What Happens on Death Ask each provider: which benefits may be payable; how the pension will be valued; which benefits may fall within the new rules; how beneficiaries are identified; what the executor must provide; whether inherited drawdown is available; what happens when the beneficiary lives in Spain; how tax information will be shared; how long the claim may take. Keep the replies with your estate-planning records.
Review How Retirement Spending Is Organised Many people have traditionally spent cash and investments first while leaving pensions untouched. That approach may need reviewing before April 2027. Consider, with professional advice: pension withdrawals; use of savings; investment ownership; gifts; life-insurance cover; property plans; future care needs; expected retirement income. Do not make a large withdrawal without calculating the immediate tax and long-term effect.
Check Whether the Estate Will Have Enough Cash Executors may need money to meet: UK Inheritance Tax; Spanish inheritance-tax payments; legal fees; property costs; pension-administration costs; funeral expenses; travel between countries. An estate can contain valuable pensions and property while still having very little immediately available cash.
Prepare Instructions for Your Executors Leave clear information showing: which pensions exist; provider contact details; where nominations are stored; where the wills are held; who the UK and Spanish advisers are; where property documents are stored; your UK residence history; who the intended beneficiaries are; which family member should be contacted. This should be a document locator, not a password list.
Review the Plan Before April 2027 Complete an initial review before the new rules take effect. Review the plan again after: updated HMRC guidance is published; a major pension withdrawal; buying or selling property; moving country; marriage or divorce; bereavement; changes to beneficiaries; significant changes in pension value. A yearly review is also sensible.
Common Mistakes to Avoid
- Assuming Every Pension Will Be Treated the Same - Defined-contribution pensions, defined-benefit pensions, annuities and death-in-service benefits can have different rules.
- Assuming Living in Spain Prevents UK Inheritance Tax - UK residence history and the location of assets may still bring part or all of an estate within the UK system.
- Looking Only at the Pension - The pension may need to be combined with property, savings, investments and other estate assets.
- Ignoring Spanish Inheritance Tax - Beneficiaries may also have Spanish reporting or tax obligations.
- Assuming the Will Controls the Pension - Pension providers normally consider their scheme rules and the beneficiary nomination separately from the will.
- Leaving Outdated Beneficiary Nominations - An old expression-of-wish form could still name a former partner or someone whose circumstances have changed.
- Withdrawing the Pension in a Panic - A large withdrawal could create an immediate Income Tax bill and reduce future retirement security.
- Forgetting the Existing Income-Tax Rules - Inherited pension benefits may also be subject to Income Tax, particularly when the pension holder dies aged 75 or over.
- Failing to Record UK Residence History - Executors may struggle to establish the correct UK tax position without clear records.
- Assuming the UK-Spain Income Tax Treaty Solves Everything - Income Tax and inheritance tax are different systems. Cross-border relief is not always automatic.
- Leaving No Cash for Tax and Administration - Executors may face tax bills and expenses before pensions or properties can be released or sold.
- Failing to Tell the Family Where Documents Are Stored - A well-planned estate can still be difficult to administer when providers, policy numbers and advisers cannot be found.
Your Action Checklist
- Pension Review
- List every UK and overseas pension.
- Record the provider and policy number.
- Identify each pension type.
- Obtain an up-to-date value.
- Record whether the pension is in drawdown.
- Check the available death benefits.
- Review every beneficiary nomination.
- Update names, addresses and percentages where necessary.
- Estate Review
- Estimate the value of UK property.
- Estimate the value of Spanish property.
- List savings and investments.
- Record business interests and valuable possessions.
- Check whether life-insurance proceeds form part of the estate.
- Record significant lifetime gifts.
- List mortgages, debts and liabilities.
- Consider the pension as part of the full estate.
- Cross-Border Review
- Record UK residence for the previous 20 tax years.
- Keep evidence of the move to Spain.
- Review UK and Spanish wills.
- Confirm that the wills do not revoke one another.
- Identify the UK executor.
- Identify the Spanish representative or adviser.
- Check where beneficiaries are resident.
- Ask whether Spanish inheritance tax may apply.
- Obtain advice about possible double taxation.
- Family Preparation
- Record pension-provider contact details.
- Store beneficiary nominations with estate papers.
- Record where original wills are kept.
- Prepare a pension and document locator.
- Tell a trusted person where the records are stored.
- Do not include passwords, PINs or security codes.
- Check whether the estate will have enough available cash.
- Record the contact details of UK and Spanish advisers.
- Final Review
- Arrange a professional cross-border review.
- Do not make pension withdrawals without understanding the tax consequences.
- Complete an initial review before 6 April 2027.
- Review the plan when further HMRC guidance is issued.
- Review again after major family or financial changes.
- Add an annual estate-planning review date.
Frequently asked questions
What About Someone Who Has Lived in Spain for Many Years?
A long-term Spanish resident may have a different UK Inheritance Tax position from someone who moved recently.
However, several questions still need to be checked:
How many of the previous 20 tax years were spent in the UK?
How long ago did the person leave?
Is the pension a UK registered pension?
Does the person still own UK property?
Are there trusts or older pension arrangements?
Are the beneficiaries resident in Spain or the UK?Is Spanish inheritance tax also relevant?
Do not assume that obtaining Spanish residence, a TIE or Spanish tax residence automatically settles the UK estate-tax position.
Does Living in Spain Protect the Pension from UK Inheritance Tax?
No—not automatically.
A British person can be:
- tax resident in Spain
- legally resident in Spain
- receiving a UK pension in Spain
- no longer UK resident for annual Income Tax purposes
and still have an estate affected by UK Inheritance Tax rules.
The UK position depends on factors including:
- long-term UK residence history
- when the person left the UK
- where assets are situated
- the type of pension
- whether the pension falls within the 2027 rules
- available exemptions and thresholds
Living abroad and being outside the UK for Income Tax purposes does not necessarily mean the estate is outside UK Inheritance Tax
How Does Spanish Inheritance Tax Fit In?
Spain taxes inheritances under the Impuesto sobre Sucesiones y Donaciones.
Unlike UK Inheritance Tax, which is generally charged against the estate, Spanish inheritance tax is usually assessed in relation to what each individual beneficiary receives.
Relevant factors can include:
- where the deceased was resident
- where the beneficiary is resident
- where the assets are located
- the beneficiary’s relationship to the deceased
- the value inherited
- the applicable autonomous-community rules
- existing wealth in some cases
Spanish residents receiving an inheritance from someone who was not resident in Spain may still have to file through the Spanish non-resident inheritance-tax system. Modelo 650 is used for relevant inheritance declarations.
The Canary Islands and other autonomous communities can apply their own reliefs and allowances within the Spanish framework.
This means two British expats with similar estates may receive different Spanish tax outcomes if they live in different regions or leave assets to beneficiaries with different circumstances.
Can Tax Be Charged in Both the UK and Spain?
It is possible for both countries’ tax systems to become relevant.
The normal UK-Spain Double Taxation Convention mainly covers income and capital gains. Spain is not included in the current GOV.UK list of countries with a modern bilateral UK Inheritance Tax treaty.
Where the same asset is taxed in both countries, unilateral relief may sometimes be available to reduce double taxation.
However, the relief is subject to detailed rules, including how the location of the asset is determined and how much tax is attributable to it.
Families should not assume that all tax paid in Spain will automatically be deducted in full from UK tax, or vice versa.
In Summary
From 6 April 2027, most unused UK pension funds and pension death benefits will form part of the deceased person’s estate for UK Inheritance Tax.
For British expats in Spain, this matters because a pension may now need to be considered alongside:
- Spanish property
- UK property
- savings and investments
- UK residence history
- Spanish inheritance tax
- UK and Spanish wills
- the residence of the beneficiaries
The practical steps are:
List every pension.
Check the pension type.
Update beneficiary nominations.
Estimate the wider estate.
record UK residence history.
Review UK and Spanish wills.
Check whether the estate will have enough cash.
Prepare clear instructions for executors.
Obtain qualified cross-border advice.
Review the plan before April 2027.
Sue’s final thoughts & experiences
A personal note from Sue Berry
For years, many of us were told that the pension should be the last pot we touched because it was a sensible way to leave something to the family.
That advice may no longer produce the same result.
This does not mean everyone should suddenly empty their pension. It means the pension needs to be looked at as part of the whole family plan.
For expats, the paperwork is often spread between two countries, two tax systems and sometimes two wills.
The kindest thing we can do for our families is not simply to leave assets. It is to leave clear information.
Make sure they know which pensions exist, who the providers are, where the wills are stored and who should be contacted in both Spain and the UK.
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