Written by Simon Huften, QROPS Specialist | Strata QROPS

What the April 2027 UK Pension IHT Changes Mean for British Expats in Canada

For most of the past four decades, a UK pension was one of the most inheritance-tax-efficient assets a British person could hold. You accumulated it over a working lifetime, and when you died, whatever remained in the pot passed to your family largely free of UK inheritance tax. That position is ending.

From 6 April 2027, unused UK pension funds and pension death benefits will be included in your taxable estate for inheritance tax purposes for the first time. For British expats living in Canada who still hold a UK pension, this is one of the most significant tax changes of the past generation – and the window to act before it takes effect is now less than seven months away.

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UK Pension Inheritance Tax

This page explains exactly what is changing, who is affected, and what the practical cost to your estate is. If you want to understand how to remove your pension from UK IHT exposure entirely, How a QROPS transfer removes your IHT exposure.

What Is Actually Changing - and When

The change was announced in the UK Autumn Budget on 30 October 2024. The Finance (No.2) Bill 2025-26 has completed its parliamentary passage and the April 2027 effective date is confirmed in government policy statements. This is not a proposal – it is confirmed UK law. UK Autumn Budget 2024

Currently, UK pension funds operate outside your estate for inheritance tax purposes. If you die with money still in your pension pot – whether that is a SIPP, a workplace defined contribution pension, or most other registered pension schemes – your nominated beneficiaries can receive those funds without inheritance tax being applied. After 6 April 2027, that exemption is removed.

Element	Before April 2027	From April 2027
Unused pension funds on death	Outside estate – no IHT	Included in estate – 40% IHT above nil-rate band
Pension death benefits (lump sum)	Outside estate – no IHT	Included in estate – subject to IHT
Who pays the IHT	Not applicable	Personal representatives (executors) – scheme administrators may be directed to pay HMRC directly
Income tax on inherited pension	Applies at beneficiary marginal rate (over 75)	Still applies – beneficiaries face IHT first, then income tax on drawdown
DB pension (fixed income for life)	Generally outside estate – no residual pot	Less central – where no pot remains on death, IHT impact is limited; lump-sum death benefits may be in scope
DC pension (SIPP, workplace DC)	Outside estate	Fully in scope – unused pot included in estate at 40%

Why This Particularly Affects British Expats in Canada

The assumption many UK expats carry is that moving abroad severs the connection between your pension and the UK tax system. For most assets, that is partly true. For UK-registered pensions, it is not – and the 2027 change makes this more important to understand than it has ever been.

UK-registered pensions remain UK-situs assets regardless of where you live. A SIPP held by a British expat living in British Columbia is still a UK pension, still administered under UK rules, and still subject to UK inheritance tax law. Moving to Canada does not change that. The only way to change it is to move the pension out of the UK system entirely.

The Long-Term Residence Test - What Changed in April 2025

Alongside the 2027 pension change, the UK made a separate but related change that took effect on 6 April 2025. The previous system, which determined IHT exposure based on an individual’s “domicile,” was replaced with a residence-based long-term residence (LTR) test.

Under the LTR test, you are subject to UK IHT on your worldwide assets if you have been UK tax resident for at least 10 of the previous 20 tax years. This is the test that now governs whether your global estate – not just your UK assets – is in scope for UK IHT.

If You Have Lived in Canada for More Than 10 Years - Read This

If you moved to Canada more than 10 years ago, you may have assumed that your IHT exposure to the UK ended when you left. For your UK pension, that assumption is wrong under the 2027 rules.

Your UK pension is a UK-situs asset – meaning it is a UK asset by location, not by your residence status. The 2027 IHT change applies to UK-situs assets on death regardless of how long you have lived outside the UK. If you hold a UK SIPP or workplace DC pension with a remaining pot, that pot will be included in your estate for UK IHT purposes when you die – even if you have been a Canadian resident for 20 years.

The LTR test governs exposure on your worldwide assets. Your UK pension’s exposure is separate and more straightforward: it is a UK asset, it is in scope, and the only exit is transferring it out of the UK system before you die.

Why a Canadian RRSP Transfer Solves This - and What Other QROPS Structures Do Not

You may have read that QROPS transfers do not effectively solve the UK IHT problem – or that they can trigger a 25% overseas transfer charge that offsets the benefit. For some QROPS structures, that is a legitimate concern. For the transfer route Simon Huften executes for British expats in Canada, it is not – because the mechanics are fundamentally different.

QROPS structures based in Malta, Gibraltar, or the Isle of Man remain connected to the UK pension framework in ways that affect IHT treatment. The tax analysis for those structures is complex, and the concern about residual IHT exposure or overseas transfer charges is legitimate for expats using those wrappers.

When executed correctly – with Canadian residency confirmed and OTA position verified – no UK income tax, Canadian income tax, or IHT is triggered at the point of transfer. Your pension leaves the UK IHT regime at the point of transfer, not at the point of death.

This is the structural reason a Canadian RRSP transfer solves the 2027 IHT problem where other approaches may not.

The transfer Simon Huften arranges for British expats in Canada works differently:

The Compounding Problem: Two Tax Events for Your Beneficiaries

Under the 2027 rules, inheriting a UK pension could trigger two separate tax events for your beneficiaries. First, UK inheritance tax at 40% on the value of the pension pot above the nil-rate band at the time of death. Second, income tax in Canada at the beneficiary’s marginal rate when they draw down the inherited funds.

Worked Example - £500,000 DC Pension, Canadian Beneficiary

Step	Calculation	Amount
UK pension pot on death	SIPP value at time of death	£500,000
Less: nil-rate band (current)	£325,000 threshold – frozen since 2009	£325,000
Taxable pension amount	£500,000 minus £325,000	£175,000
UK IHT at 40%	40% of £175,000	£70,000 payable to HMRC
Remaining pot passed to beneficiary	£500,000 minus £70,000	£430,000
Canadian income tax on drawdown	At beneficiary marginal rate – example: 43% (Ontario top rate)	Up to £184,900 over drawdown period
Combined effective loss	IHT + income tax on £500,000 pot	Up to £254,900 – over 50% of the original pension

The Nil-Rate Band Freeze - Why the Problem Is Larger Than It Looks

The nil-rate band has been frozen at £325,000 since 2009 and is now set to remain frozen until at least 2030. In real terms, its value has fallen significantly over that period – meaning that a pension pot which would have been well below the IHT threshold when many British expats left the UK has now grown into a fully taxable estate asset.

A British expat who left the UK in 2005 with a £150,000 pension pot that has since grown to £450,000 – a reasonable outcome for a well-invested DC pension over 20 years – would now have £125,000 of that pot sitting above the nil-rate band and fully exposed to 40% IHT. In 2005, the same pot would have been entirely below the threshold.

Who Is Most Exposed to the 2027 Change

Profile	IHT Exposure Level	Why
Hold a UK SIPP or personal pension with unused pot	HIGH	DC pensions are the primary target of the 2027 change – entire unused pot included in estate
Hold a UK workplace DC pension not yet in drawdown	HIGH	Same as SIPP – unused pot in scope at 40% above nil-rate band
Hold a UK DB pension – fixed income for life, no residual pot	LOWER	Where no pot remains on death, IHT impact is limited – but lump-sum death benefits attached to DB scheme may be in scope
Pension value below nil-rate band (£325,000)	LOWER	If total estate including pension remains below nil-rate band, IHT may not apply – but nil-rate band is frozen and has fallen in real value
Pension already fully in drawdown	LOWER	Funds drawn and spent are no longer in the pension pot – but any remaining undrawn funds are still in scope
Lived in Canada for more than 10 years	HIGH – commonly underestimated	UK pension is a UK-situs asset regardless of your LTR status or years abroad – see section above
Younger British expat, 55-65, substantial pot	HIGH	Long accumulation phase means larger pot remaining at death – maximum IHT exposure at current growth rates

What About the Spouse Exemption?

This is one of the most common questions Simon Huften receives in consultations on this topic. The answer is nuanced and depends on your spouse’s specific position.

If you leave your pension to a spouse who qualifies for the UK spousal IHT exemption, no IHT is charged at the first death. However, for British expats in Canada, two specific situations create complications:

Simon Huften will confirm your specific spousal and estate position during your consultation. Do not assume the spousal exemption eliminates this exposure without verifying your specific circumstances.

The April 2027 Deadline - What Inaction Actually Costs

April 2027 is approximately seven months away. The cost of not acting before that date is not a one-time event – it is a permanent change in your estate’s IHT position. From the moment the 2027 rules take effect, every year your UK pension remains in the UK system is a year in which your estate carries a 40% IHT liability on that pot at the point of your death.

That does not mean you cannot transfer after April 2027 – you can, and a transfer after the deadline still removes the pension from the IHT regime going forward. But any IHT liability that crystallises between April 2027 and your transfer date would apply to your estate if you died during that window.

The transfer timelines below show the latest realistic start dates to complete before April 2027:

Transfer Type	Typical Timeline	Latest Realistic Start Date	Risk if You Wait
Defined Benefit (DB) pension	12–16 weeks (3–4 months)	December 2026 – earlier is safer	DB transfers require CETV provision, FCA advice, and scheme administrator cooperation – any delay pushes past April 2027
Defined Contribution (DC) pension	6–10 weeks	February 2027 – but scheme delays occur	DC timelines are shorter but not immune to administrator delays – February start leaves no buffer
Multiple or complex pensions	16–20 weeks	November 2026 at the latest	Each scheme must be processed independently – aggregate timelines stack

If you are reading this page in September 2026, a Defined Benefit transfer started today gives you a realistic runway to complete before April 2027. A transfer started in January 2027 does not.

Frequently Asked Questions

Does the 2027 IHT change apply to me if I live permanently in Canada?

Yes, if you hold a UK-registered pension. Your UK pension is a UK-situs asset regardless of where you live. The 2027 change applies to unused UK pension funds and death benefits on death – your Canadian residency does not remove your UK pension from UK IHT. Transferring your pension to a Canadian RRSP via the QROPS framework is the most direct way to remove this exposure before April 2027.

I have lived in Canada for more than 10 years. Does the long-term residence test protect me?

Not from UK pension IHT. The LTR test governs whether your worldwide assets are in scope for UK IHT – and it may reduce that exposure if you fall below the 10-of-20-years threshold. But your UK pension is a UK-situs asset regardless of LTR status. It will be included in your estate under the 2027 rules even if you have been a Canadian resident for 20 years. The LTR test does not override the pension’s UK-situs classification.

My pension is a DB (defined benefit) scheme - am I affected?

Less directly, in most cases. Where a DB pension provides a fixed income for life with no residual pot remaining on death, there is nothing to bring into the IHT estate. However, if your DB scheme has a lump-sum death benefit attached, those amounts may be in scope. Simon Huften will confirm your specific DB scheme’s exposure during your consultation – DB transfer decisions are also subject to FCA advice requirements where the CETV exceeds £30,000.

I read that QROPS transfers do not solve IHT - is that true?

For some QROPS structures – particularly Malta, Gibraltar, or Isle of Man wrappers – that concern is legitimate. The Strata QROPS model is different: your pension transfers into a Canadian RRSP under paragraph 60(j) of Canada’s Income Tax Act. Once in the RRSP, it is a Canadian domestic account and is outside the UK IHT regime. The 2027 pension IHT rules apply to UK-registered pension schemes – not to Canadian RRSPs. This is the structural reason the Canadian transfer route resolves the problem where other approaches may not.

How a QROPS transfer removes your IHT exposure

What if I cannot complete a transfer before April 2027?

A transfer after April 2027 still removes your pension from the UK IHT regime going forward. The difference is that any IHT liability crystallised between April 2027 and the date of your transfer would apply if you died during that window. The sooner the transfer is completed after the deadline, the shorter that exposure window. Earlier is better – but a post-deadline transfer is still better than no transfer.

Should you transfer before the deadline?

Will the QROPS transfer itself trigger any tax?

When executed correctly, no. The transfer into a Canadian RRSP is structured under paragraph 60(j) of Canada’s Income Tax Act and the UK-Canada Double Taxation Convention. No UK income tax, Canadian income tax, or IHT is triggered at the point of transfer. The Overseas Transfer Allowance (OTA) applies – Simon Huften confirms your OTA position before transfer to ensure no unexpected liability. The Lifetime Allowance was abolished in April 2024 and does not apply.

tax implications of the transfer

Your UK Pension Is in Scope from April 2027 - Here Is What to Do Now

Simon Huften offers a free, no-obligation 20-minute consultation to confirm your eligibility, assess your pension’s IHT exposure under the 2027 rules, and outline your options. There is no charge, no sales pressure, and no obligation.