Should I move money from my SIPP to an ISA before the inheritance tax changes?

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Shares Magazine

8 October 2026

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Rachel Vahey, AJ Bell Head of Public Policy, says:

From April 2027, unused pension funds will generally fall within a person’s estate for inheritance tax (IHT) purposes if they die after 6 April 2027. In practice, “unused pension funds” means pension money that has not yet been accessed, as well as money that has been moved into drawdown but not spent.

This change is prompting people to review how much they hold in pensions, especially if they built up pension wealth partly because it sat outside their estate for IHT. For some, bringing unused pension savings into the estate could mean IHT is payable for the first time. For others, it could increase the eventual bill.
It’s worth noting that any money passed to a spouse or civil partner is automatically exempt from IHT. Mitigating IHT may only pose a problem for those who are unmarried or on a second death of a couple.

Moving to a SIPP won’t solve the problem on its own

Moving money from a SIPP into a Stocks and shares ISA will not, by itself, solve an IHT problem. ISA savings normally fall into your estate for IHT purposes too. So, if the aim is simply to get money outside the estate, taking money out of a pension and moving it into an ISA does not achieve that. It changes the tax wrapper, but not the IHT position.

There may still be reasons to use an ISA. ISAs are straightforward, tax-efficient and easy to access. Income and growth are tax-free, and withdrawals are not taxed. But pensions also enjoy tax-free growth, as well as flexible income options. You can usually take money when needed, either by taking tax-free cash and moving funds into drawdown, or by taking lump sums, with 25% normally available tax-free and the rest taxed as income.

If you do not need the money now, there may be limited benefit in taking tax-free cash gradually simply to move it into an ISA. You would be moving money from one tax-efficient wrapper to another, while using up your ISA allowance each year.

In fact, this approach may even make the options worse for your family. On death, if there is no surviving spouse or civil partner, ISA funds are taken out of the tax wrapper completely. However, pension funds can remain within the tax wrapper and be passed to loved ones to take as and when they want, whilst still benefiting from tax-free growth.

There is also an argument for leaving money in the pension if you do not plan to spend it soon. If funds remain invested, future growth could increase the amount of tax-free cash available later, subject to the usual limits. Taking tax-free cash earlier than needed could mean future investment growth happens outside the pension instead.

The spending option

If your objective is to reduce the value of your estate, you could instead spend the money you withdraw from the pension, for example, on home improvements or travel. Gifting is another possibility, whether directly to family, into a tax wrapper on their behalf, or through a trust. Gifts have their own IHT rules and timescales, so advice is sensible before making large transfers.

The key point is that an ISA may give you simplicity and tax-free access, but it does not give you an IHT advantage over a pension once the new rules apply. If you expect to use the money yourself, drawing gradually from the SIPP can work well. If not, keeping it invested within the pension may still be attractive, while thinking carefully about whether spending or gifting forms part of your wider estate planning.