Mark your calendar for 6 April 2027 (the start of the 2027/28 tax year). That’s when two big ‘wrapper’ changes land:

• ISAs: you can still save £20,000 a year, but you’ll be steered away from holding all of it in cash
• Pensions: unused pots stop being the magical inheritance-tax-free ‘outside the estate’ zone

NMTBP breaks down what’s actually changing – and what your beneficiaries might really keep after tax

The ISA change in 2027: the Cash ISA gets capped (for under-65s)

Today, you can put your whole ISA allowance into cash if you want. From 6 April 2027, the government’s plan is:

• Under 65: you can put up to £12,000/year into a Cash ISA
• 65 and over: the Cash ISA subscription limit stays at £20,000/year
• Overall ISA allowance: still £20,000/year (so you can still contribute £20k total – you just can’t put more than £12k of it into cash if you’re under 65)

The “don’t be clever” rules (also coming in 2027)

HMRC has also flagged anti-circumvention measures – basically, stopping people from parking “cash-like” holdings in Stocks & Shares ISAs to mimic a Cash ISA. The detail matters here because some proposals include a tax charge on interest earned on cash held inside non-cash ISA wrappers, depending on the final rules

So yes: in 2027, you may not only face a cash cap, but also tighter policing of what counts as “cash-like” within other ISA types

The pension change in 2027: IHT is levied on unused pension pots

This is the big one.

From 6 April 2027, most unused defined contribution pension funds and death benefits will be included in your estate for inheritance tax purposes, and will be taxed at the standard 40% rate if your total estate exceeds the IHT thresholds

Most defined benefit pensions don’t form part of your estate when you die. Instead of a pot being passed on, the scheme usually pays a survivor’s pension (for example, to a spouse), which is taxed as income in the recipient’s hands rather than as inheritance tax. Only any lump-sum death benefits paid by the scheme may potentially be subject to inheritance tax

Key mechanics:

• The responsibility for reporting/paying IHT in relation to pension death benefits shifts from pension providersto your executors
• Existing exclusions (e.g., certain death-in-service benefits and some structures) are expected to remain outside IHT, but ‘most unused funds’ are in scope
• This applies to deaths on/after 6 April 2027 (not to money paid out earlier under old rules)

The bit you may have missed: what tax rate do beneficiaries actually face after 6 April 2027?

Here’s the cleanest way to think about it:

If you leave an ISA to someone

• ISA withdrawals are still tax-free for the recipient.
• But ISAs count as part of what you own when you die. So if everything you leave behind is worth more than the inheritance-tax allowance, some of the ISA money may be taken in inheritance tax before your beneficiary gets it

The effective tax rate on an inherited ISA: typically 0% income tax + up to 40% IHT, so up to ~40% overall in many cases

If you leave a pension to someone (after 6 April 2027)

Now it can get hit twice:

1. IHT at up to 40% because the unused pot is counted in the estate
2. Income tax when the beneficiary withdraws, depending on the deceased’s age at death (this is the long-standing pension rule-of-thumb):

• death before 75: withdrawals are income-tax-free
• death after 75: withdrawals are taxed at the beneficiary’s marginal rate

Recent coverage discussing the interaction between “age 75 income tax rules” and the new IHT treatment highlights this squeeze risk after 2027

Worked examples: pension pot inherited after 2027 

Assume:

• a £100 pension pot is inherited,
• The estate is already over the IHT thresholds (so the marginal IHT rate is 40%),
• and the beneficiary then withdraws the remaining amount.

Case A: deceased dies after 75, beneficiary is a basic-rate taxpayer (20%)

• IHT takes 40% → £100 becomes £60
• Beneficiary income tax at 20% on withdrawals → keeps £48
• Effective total tax rate: 52%

Case B: after 75, beneficiary is higher-rate (40%)

• £100 → after IHT £60
• 40% income tax on £60 → keeps £36
• Effective total tax rate: 64%

Case C: after 75, beneficiary additional-rate (45%)

• £100 → £60 after IHT
• 45% income tax on £60 → keeps £33
• Effective total tax rate: 67%

That ‘stacking’ effect is why the 2027 pension change is being treated as a major estate-planning pivot

So what’s the headline for 2027?

• ISAs: not less generous overall, but more controlled – especially if you’re under 65 and prefer cash
• Pensions: potentially a new inheritance tax bill on unused pots, and for some families, IHT + income tax can push effective tax rates well north of 50%

Caveat emptor!