New Tax Year 2026: Key Pension Changes and What to Do Before April 2027

The new UK tax year began on 6 April 2026, bringing a 4.8% rise in the state pension and the clock ticking on a major pension inheritance tax change set for April 2027. Here is what every saver needs to know right now.

What Changed on 6 April 2026

The 2026-27 tax year opened with the largest state pension increase in three years. Under the triple lock guarantee, the full new state pension rose to £241.30 per week (£12,548 per year), up from £230.25 — a 4.8% increase driven by earnings growth. The basic state pension also rose to £184.90 per week.

According to the official government publication Benefit and Pension Rates 2026 to 2027, pension credit thresholds have been updated accordingly: the single person guarantee credit rises to £238.00 per week, and £363.25 for couples.

Beyond the state pension, the annual allowance for private pension contributions remains frozen at £60,000 for the 2026-27 tax year. No changes were announced to the lifetime allowance framework, which was abolished in April 2024. The tapered annual allowance for high earners (income above £260,000) continues to reduce to a minimum of £10,000.

The 2027 Inheritance Tax Bomb: Why You Need to Act This Year

The most significant change is not happening today — but you need to plan for it now.

From April 2027, unused pension savings and death benefits will for the first time be included in your estate for inheritance tax purposes. This is a fundamental shift from the current position, where pensions sit outside the estate entirely.

The implications are significant. A person with a £500,000 pension pot, a house worth £400,000 and other assets above the nil-rate band could find a large portion of their pension taxed at 40% on death, after the nil-rate band and residence nil-rate band thresholds are applied.

This means the 2026-27 tax year is potentially the last full year to restructure pension arrangements before this rule takes effect. Strategies that wealth advisers are currently reviewing with clients include:

• Drawing down more from pensions this year to reduce the pot subject to IHT, while the drawn-down cash is still within income tax thresholds
• Gifting from pension withdrawals using the annual gift exemption (£3,000 per year, or £6,000 if the previous year's allowance was unused)
• Reviewing expression of wishes nominations — these documents tell pension trustees who should benefit from your pot, but from 2027 the IHT position of the beneficiary will matter more than ever
• Considering whole-of-life insurance in trust to cover the expected IHT liability

None of these decisions should be taken without professional advice, as the interaction with income tax, IHT thresholds, and individual pension scheme rules is complex.

ISA and Pension: Using the Right Wrapper This Year

The stocks and shares ISA annual allowance remains at £20,000, unchanged for 2026-27. The question for many savers is whether to prioritise an ISA or a pension for the remaining year.

In most cases, pensions still offer a better tax deal for working-age savers: contributions attract income tax relief at your marginal rate (20%, 40%, or 45%), while ISAs use post-tax money. However, in light of the 2027 IHT change, those close to retirement or with large existing pension pots may find the ISA wrapper more attractive as part of a broader estate planning strategy.

A key date: once you have started drawing from a defined contribution pension flexibly, the Money Purchase Annual Allowance (MPAA) limits your further contributions to £10,000 per year. If you are considering accessing your pension for the first time, take advice before doing so — triggering the MPAA by mistake can significantly limit your future saving capacity.

What to Do This Week

The start of a new tax year is the ideal moment to review your pension arrangements. Three practical steps:

1. Check your state pension forecast via the Check your State Pension forecast tool on GOV.UK. If you have gaps in your National Insurance record, you may still be able to fill them voluntarily.
2. Review your pension nomination forms — also called expression of wishes. These are not legally binding but guide trustees. With the IHT change approaching, make sure they reflect your current wishes.
3. Book a review with a qualified financial adviser — either a regulated independent financial adviser (IFA) or a chartered wealth manager. The interaction of pension rules, income tax, and the forthcoming IHT change is too complex to navigate alone.

Disclaimer: This article is for informational purposes only and does not constitute financial or tax advice. Tax rules can change and depend on individual circumstances. Always consult a qualified financial adviser or tax professional before making pension decisions.

For more on navigating investments in the current environment, see our recent analysis: Vanguard cuts fees and Spring Statement 2026: 5 moves for UK investors.

An independent financial adviser can help you build a pension strategy tailored to your circumstances before the April 2027 inheritance tax change takes effect.