UK Pension Reform 2027: What Residents in Mallorca Should Do Now

I'll say it up front: the word 'estate' sounds abstract, but the consequences are often very concrete. From April 2027 unused pension assets in the UK will generally be considered part of the estate. Practically this means assets that used to pass freely to beneficiaries may now be used to calculate UK inheritance tax. A small numeric example, because numbers make the risk tangible. Take Paul and Mary, a couple who moved to Mallorca in 2022. They keep a terraced house in England worth £420,000, own a Spanish finca cottage for €310,000 and have cash savings and investments in the UK equivalent to £180,000. Paul also has a SIPP worth around £700,000. Today this SIPP, as long as it is not paid out, often does not count toward the IHT base. From 2027 it will be added. With unchanged allowances this can quickly result in several hundred thousand pounds of additional tax liability—the exact figure depends on personal allowances, residency issues, and existing assets. The result can be a drastically higher tax bill for the children. What I hear in conversations with families: many do not have a complete overview of beneficiaries, contracts, or how pension payments are actually processed in the event of death. Start immediately to organise documents, check for overlaps, and seek professional advice on cross‑border solutions. Some measures take months for forms and tax certificates, others require contract changes or restructuring.

I'll say it up front: the word 'estate' sounds abstract, but the consequences are often very concrete. From April 2027 unused pension assets in the UK will generally be considered part of the estate. Practically this means assets that used to pass freely to beneficiaries may now be used to calculate UK inheritance tax. A small numeric example, because numbers make the risk tangible. Take Paul and Mary, a couple who moved to Mallorca in 2022. They keep a terraced house in England worth £420,000, own a Spanish finca cottage for €310,000 and have cash savings and investments in the UK equivalent to £180,000. Paul also has a SIPP worth around £700,000. Today this SIPP, as long as it is not paid out, often does not count toward the IHT base. From 2027 it will be added. With unchanged allowances this can quickly result in several hundred thousand pounds of additional tax liability—the exact figure depends on personal allowances, residency issues, and existing assets. The result can be a drastically higher tax bill for the children. What I hear in conversations with families: many do not have a complete overview of beneficiaries, contracts, or how pension payments are actually processed in the event of death. Start immediately to organise documents, check for overlaps, and seek professional advice on cross‑border solutions. Some measures take months for forms and tax certificates, others require contract changes or restructuring.

The abolition of the old domicile concept simplified many things, but the new long‑term residence rules bring their own pitfalls. Your status on paper determines which foreign assets are chargeable.

Immediately: gather documents, check beneficiaries, contact tax advisors experienced in UK‑Spain matters. Check NT codes, QROPS options or trust models. Schedule appointments early; paperwork takes time.