British expats living in Spain will be affected by a UK rule change taking effect April 6, 2027, under which unused pension funds become part of a person’s estate for UK Inheritance Tax (IHT) purposes, according to the Daily Mail. The change was originally announced in the UK’s 2024 Autumn Budget. The IHT rate is 40%, applying to estate value above a £325,000 threshold.
UK “long-term resident” status for IHT purposes requires having been a UK tax resident for at least 10 of the last 20 tax years — expats who clear that window generally fall outside IHT’s reach. But UK-held assets, including a UK pension, can still be caught by the rule even if the person never sets foot in the UK again.
Chris Ball, CEO of expat financial planning firm Hoxton Wealth, told The Olive Press that moving to Spain does not automatically remove IHT liability, and urged people affected to review their position now rather than rush decisions. The Daily Mail also flags a “double taxation” risk: if the pension holder dies after age 75, beneficiaries can face both IHT and Income Tax on the same pension pot.
Citing Majorca Daily Bulletin, the Daily Mail reports that some expats are adopting a “spend the pension first” approach — drawing down the pension while alive to reduce the taxable amount — though this carries its own tradeoff, since it shifts exposure to income tax rates in the expat’s country of residence.
References
Daily Mail – British expats in Spain face 40% pension tax blow as new UK inheritance rules loom
