Pensions in your estate from April 2027: why some families are looking at FICs

If you have been building a pension partly to pass it on, the rules are changing. For deaths on or after 6 April 2027, most unused pension funds and death benefits will count towards the estate for inheritance tax. That is enacted law in Finance Act 2026, not a proposal. It is one of the reasons some families are looking again at how they hold and pass on wealth, including through a family investment company (FIC).

What is changing

Until now, a defined contribution pension has usually fallen outside the estate for inheritance tax. From 6 April 2027 most unused funds and death benefits will be brought in. The personal representatives of the estate are responsible for reporting and paying the tax.

Two exclusions are worth knowing. Death-in-service benefits and dependants' scheme pensions are left out. Different schemes behave differently, so ask your provider or pension adviser how yours is treated.

The headline rate is unchanged. Inheritance tax is 40% on the estate above the available nil-rate bands. The nil-rate band is £325,000 and the residence nil-rate band is up to £175,000 where the home passes to direct descendants. Both are frozen up to and including 2030/31, and the residence band tapers away for estates above £2m.

For a family whose pension was previously outside the estate, the effect can be significant. An estate that sat below the thresholds may now sit above them, and an estate already above them may pay 40% on more.

What a FIC does not do

It is worth being direct about this. A FIC does not hold your pension and does not shelter it. The pension remains a separate arrangement, and a pension adviser or IFA is the right person to talk to about how it is used, drawn and nominated.

A FIC deals with the money and assets you hold outside the pension. The question is what you do with those, now that the pension is part of the picture.

Why the conversation has widened

Three things have come together.

1. More estates meet inheritance tax. With the pension counted, and the bands frozen, more families have an estate in the 40% range.
2. The old order of spending is being questioned. Many people planned to spend other assets first and leave the pension to pass on. With that benefit reduced, some will use pension money earlier and so have different amounts left outside it. Drawing a pension has income tax consequences, so that is a decision for your pension adviser with your figures.
3. Capital that is not needed for living costs may be worth looking at. If you have money or investments outside the pension that you will not need, you can consider where future growth on them should build.

This is where a FIC can come in. In a typical family investment company, the parents subscribe for or lend money to the company. Their shares can be set at a fixed value with the votes, and growth shares go to the children or to a trust. Future growth then accrues outside the parents' estate. We explain that in freezer shares explained.

What it takes

The honest version is that a FIC takes planning, patience and a comfortable cushion.

• Seven years. A gift of cash to adult children, who then subscribe for shares, is a potentially exempt transfer. It falls out of the estate if the donor survives seven years, with taper relief on any tax between three and seven years.
• A loan stays in your estate. If you fund the company with a loan, the debt it owes you remains an asset of yours for inheritance tax until it is repaid or given away. Loan repayments can provide an income, which we describe in funding a FIC with a loan.
• Costs and administration. A limited company files accounts that are public, keeps records, files tax returns and pays corporation tax on its own profits.
• Enough left for you. A FIC is for money you will not need. It is not a place to put funds you may need for care or living costs.

Who it suits, and who it does not

A FIC tends to suit families with money outside the pension that is comfortably surplus: perhaps proceeds of a business sale, an investment portfolio or let property. It is much less likely to suit someone whose wealth is mainly a pension and a home. In that case other steps, such as gifting from surplus income, using exemptions or revisiting nominations and will, usually come first. We say so when a FIC is not right. See when a family investment company isn't right.

Questions to put to your advisers

A few questions are worth asking before you decide anything.

• To your pension adviser: how will my scheme's death benefits be treated from April 2027, who is named to receive them, and what would drawing more now cost in income tax?
• To your solicitor: do my will and any trusts still do what I want, now that the pension may be part of the estate?
• To us: if I have surplus capital outside the pension, would a family investment company, a trust, simple gifts or no action serve my family best, and what would I need to keep for myself?

Taking these in the right order avoids acting on one part of the picture before the rest is clear.

A sensible order of steps

1. Get the value of your pension and your other assets in one place.
2. Take pension advice on how the funds should be used and nominated.
3. Look at the inheritance tax position with and without the pension.
4. Decide how much is surplus, then test whether a FIC, a trust, simple gifts or no action suits you best.

Our inheritance tax calculator can show roughly what is at stake in growth on assets you move out of your estate. For a view on your own position, book a free call. We respond the same working day.

This article is general information, not advice. Tax rules change and their effect depends on your circumstances. Law as at 9 October 2026. Please speak to us and your pension adviser before acting.