From 6 April 2027, most unused pension funds and pension death benefits will be brought into the UK Inheritance Tax calculation when a pension holder dies.

For British expats in Thailand, the important point is that a UK pension can remain exposed even after much of the wider overseas estate has fallen outside UK IHT.

Under the residence based Inheritance Tax rules introduced from 6 April 2025, personally owned assets outside the UK can generally fall outside UK IHT once you are no longer treated as a long-term UK resident.

Pensions can be different. From April 2027, the legislation treats relevant pension property as situated in the country or territory where the pension scheme is established. Relevant pension property in a UK established scheme therefore remains UK situated for these IHT rules even after your long-term UK residence has ended.

For some British expats in Thailand, a UK pension could therefore become one of the largest remaining assets still exposed to UK IHT.

This article explains how the new pension rules work, why they matter after your wider overseas estate has fallen outside UK IHT and what you may need to reconsider before April 2027.

What Changes From 6 April 2027?

Under the current rules, many unused pension funds and pension death benefits can pass outside the estate for Inheritance Tax.

For deaths on or after 6 April 2027, most will instead be included in the IHT calculation.

This does not mean they will automatically be taxed at 40%. The final liability will depend on the wider estate, the beneficiary and any available exemptions and allowances.

The key change is simple: unused pension wealth can no longer be assumed to sit outside the IHT estate.

Which Pension Benefits are Affected?

Defined contribution pensions and SIPPs are likely to be the main concern because any unused fund can form part of the IHT calculation from April 2027.

Defined benefit pensions are different. The pension itself is not given an artificial capital value. Instead, certain death benefits payable under the scheme may be included.

Some benefits are excluded, including qualifying dependants’ scheme pensions, certain dependants’ or nominees’ annuities and qualifying death in service benefits.

The exact treatment therefore depends on the type of pension and the benefit payable on death. The State Pension is not an unused pension fund covered by these rules.

Why This Matters for British Expats in Thailand

Under the residence based IHT rules introduced from 6 April 2025, someone who has been UK resident for at least 10 of the previous 20 tax years can remain within worldwide UK IHT for between three and ten tax years after leaving.

We refer to this continuing period as the IHT tail.

Once the tail ends, personally owned assets outside the UK can generally fall outside UK IHT. A UK established pension is different because the new pension rules treat it as UK situated.

 Your IHT tail can end without your UK pension leaving the UK IHT net.

We explain how the three to ten year period works in our separate guide to how long UK Inheritance Tax can follow you after moving to Thailand.

Example: Your IHT Tail Has Ended but Your SIPP is Still Exposed

Consider a British expat who has lived in Thailand long enough that they are no longer a long-term UK resident.

They hold £1 million of personally owned assets in Thailand and an £800,000 UK SIPP. Assume there are no other relevant UK assets, the SIPP passes to an adult child and the full £325,000 nil rate band is available.

The Thai assets can generally fall outside UK IHT, while the UK SIPP remains within scope because the scheme is established in the UK.

£800,000 pension value
Less £325,000 nil rate band
£475,000 taxable

At 40%, the potential IHT would be £190,000.

The actual liability will depend on the wider estate, previous gifts, exemptions and the pension arrangement. The important point is that the end of the IHT tail does not necessarily remove UK IHT from a UK pension.

What if Your Pension Goes to Your Thai Spouse?

Leaving pension benefits to a spouse can produce a different IHT outcome from leaving them to children or other beneficiaries.

If the deceased is a long-term UK resident but their spouse is not, the usual unlimited spouse exemption can be restricted to £325,000. This is a cumulative limit, so earlier transfers to the same spouse can use some or all of it.

A non-long-term UK resident spouse can elect to be treated as long-term UK resident for IHT purposes, which can restore the full spouse exemption. However, the election can also bring other overseas assets within UK IHT, so it is not automatically beneficial.

Once the British spouse is no longer a long-term UK resident, the position changes again. The UK pension can remain within IHT because the scheme is UK established, while the special restriction on spouse exemption may no longer apply.

The key point is that whether the pension is within UK IHT and whether spouse exemption applies are separate questions.

Your Pension Can Affect IHT on the Rest of Your Estate

Bringing pension wealth into the estate can also reduce other IHT allowances.

The standard nil rate band is currently £325,000. A residence nil rate band of up to £175,000 may also be available, but it starts to taper once the estate exceeds £2 million.

For example, an estate worth £1.9 million plus a £400,000 pension would be valued at £2.3 million for this purpose. The £300,000 excess could reduce the residence nil rate band by £150,000.

A pension can therefore increase IHT on other assets, not just create a liability on the pension itself.

For someone who is no longer a long-term UK resident, the residence nil rate band will also depend on whether the relevant home remains within the UK IHT estate.

Can IHT and Income Tax Both Apply?

Yes. From April 2027, the same pension can potentially face IHT when the pension holder dies and income tax when the beneficiary receives the benefits.

Income tax treatment depends partly on the pension holder’s age at death. Benefits following death before age 75 often receive more favourable treatment, but they are not automatically tax free. Certain lump sum death benefits are tax free only within the available lump sum and death benefit allowance, currently up to £1,073,100.

Where death occurs at age 75 or over, inherited pension benefits are more likely to be subject to income tax.

IHT and income tax rates should not simply be added together. Where IHT has been paid from pension benefits, the rules adjust the amount subsequently subject to income tax.

For a beneficiary living in Thailand, there is then a further question: how will Thailand tax the pension payment?

What About Tax in Thailand?

UK IHT is only one part of the position.

The UK Thailand Double Taxation Agreement has no general private pensions article and does not provide protection against UK Inheritance Tax.

Nor is a pension payment received after someone’s death automatically treated as tax free inheritance in Thailand.

In Revenue Department Ruling No. กค 0706/12151, a Thai widow received a pension arising from her deceased British husband’s former UK employment. The Revenue Department treated it as pension income under Section 40(1) of the Revenue Code. The ruling shows that a payment received following a death is not automatically treated as exempt inheritance.

The ruling predates Thailand’s current foreign income remittance rules, but the classification remains relevant. A survivor pension, inherited drawdown, lump sum or annuity may not all receive the same Thai tax treatment.

Thai inheritance tax is separate again. It generally applies only where a beneficiary receives more than THB 100 million from the same deceased person and only to specified assets. A legal spouse is exempt.

The key point is that UK IHT, Thai income tax and Thai inheritance tax need to be considered separately.

Could Moving Your Pension Overseas Remove the IHT Exposure?

Potentially, but an overseas transfer is not a simple solution.

While you remain a long-term UK resident, relevant pension property can be within UK IHT whether the scheme is based in the UK or overseas. Once your long-term UK residence has ended, a qualifying overseas pension can fall outside the UK pension IHT charge, while a UK established pension remains exposed.

Transferring a UK pension overseas can, however, create significant tax costs. A 25% Overseas Transfer Charge can apply, including where you live in a different country from the receiving scheme.

For someone living in Thailand, that can make an overseas transfer expensive before any potential IHT saving is considered.

Any transfer also needs to take account of UK and Thai tax, pension fees, investment options, regulation and retirement needs. Moving a pension overseas purely to reduce IHT should not be regarded as an automatic solution.

Does This Change How You Should Use Your Pension?

Potentially.

Estate planning has often favoured preserving pension wealth while spending other assets first because pension death benefits could remain outside IHT. From April 2027, that assumption needs to be reconsidered.

This does not mean you should automatically withdraw more from your pension. If you are still within your IHT tail, withdrawing funds may simply move value from one IHT exposed asset to another.

Once your long-term UK residence has ended, the calculation can be different.

Pension withdrawals, lifetime gifts and the order in which assets are used should therefore be reviewed alongside your UK residence position, Thai tax and retirement needs.

Beneficiary Nominations Still Matter

Pension nominations and expressions of wishes remain important after April 2027, but they will no longer keep relevant pension property outside IHT simply because trustees have discretion over who receives it.

Who receives the pension can still affect spouse exemption, charity exemption, income tax and the beneficiary’s own tax position.

Beneficiary nominations should therefore still be reviewed and kept up to date.

What Executors and Families Need to Know

The new rules will make pension administration after death more important, particularly where pension providers, executors and beneficiaries are in different countries.

Personal representatives will generally need to identify relevant pension property and include it in the IHT process. Scheme administrators are expected to provide a date of death valuation within 28 days of a formal request, or an estimate if the final value is not yet available.

Where a personal representative reasonably believes IHT may be due, they can instruct a registered pension scheme to withhold up to 50% of a non-exempt beneficiary’s entitlement while the position is settled. Qualifying pension related IHT of at least £1,000 can also be paid directly from the scheme to HMRC.

Good records therefore matter. Executors should be able to identify each pension, where the scheme is established, the current beneficiary nominations and where the relevant documents are kept.

For British expats in Thailand, pensions should form part of the wider succession plan rather than being treated separately.

What British Expats Should Review Before April 2027

The new rules do not mean every British expat with a UK pension needs to make changes. They do mean existing arrangements should be reviewed.

Consider:

• Whether you are still a long-term UK resident and when your IHT tail ends
• What pensions you hold and where each scheme is established
• Who will receive the benefits and whether spouse exemption applies
• How the pension fits with your UK property, Thai assets and other investments
• Whether it could affect other IHT allowances
• How pension benefits received in Thailand may be taxed
• Whether your current withdrawal and lifetime gifting strategy still makes sense

The pension should be considered as part of the whole estate, not in isolation.

For British expats in Thailand, the key point is simple: the end of your IHT tail can take personally owned overseas assets outside UK IHT without taking a UK established pension with them.

For some, the pension may therefore become one of the largest remaining assets still exposed to UK IHT.

Review Your UK Pension and IHT Position

The interaction between UK pensions, Inheritance Tax, residence history and Thai tax can be complex, particularly once the April 2027 rules take effect.

If you are unsure how the changes affect your pension or wider estate, our succession team can help you understand your position and identify the areas that may need further planning.