Inheritance tax on pensions from April 2027

This applies to deaths on or after that date, and it is now law. Below we explain what has changed, who it affects, and what it means in practice. This page is general information about the tax rules. It is not advice about your own situation.

What has actually changed

Until now, most defined contribution pensions have sat outside your estate for inheritance tax. If you died with money still in your pension, the scheme administrator usually had discretion over who received it, and because of that discretion it was not treated as part of your estate. Many people have used this deliberately, drawing on other savings first and leaving the pension untouched so it could pass on tax-free.

From 6 April 2027 that changes. Most unused pension funds and pension death benefits will be included in the value of your estate for inheritance tax purposes. The discretion the scheme administrator holds no longer keeps the money outside your estate.

The change was announced in the Autumn Budget of October 2024, consulted on through 2025, and became law in the Finance Act 2026, which received Royal Assent on 18 March 2026. HMRC published a technical note in May 2026 setting out how it will work in practice, and further guidance is expected before the rules take effect.

The date that matters is the date of death, not the date the money is paid out. If someone dies before 6 April 2027, the old rules apply even if their beneficiaries receive the money afterwards.

Who this affects

The change is relevant to you if you have money left in a pension when you die and your total estate, including that pension, comes to more than the allowances available to you.

It is likely to matter most to people who have deliberately preserved a pension to pass on, and to people whose estate was comfortably under the threshold until the pension was added to it. The government's stated expectation is that a minority of estates will be affected, but the pension is often the largest single asset someone holds, so adding it can change the picture considerably.

Who is not affected, or affected less than they might fear

• Anything left to a spouse or civil partner. The existing exemption continues. Pension money passing to a husband, wife or civil partner is not subject to inheritance tax, in the same way as the rest of your estate. Note that this defers the tax rather than removing it, because the money then forms part of their estate.
• Anything left to charity. The existing exemption continues.
• Death in service benefits. Lump sums paid from a registered pension scheme because someone died while still employed are excluded entirely.
• Estates within the allowances. The nil rate band, and the residence nil rate band where it applies, work as they do now. If everything including the pension falls within those allowances, there is no inheritance tax.
• Continuing annuities and small funds. Annuities that continue to be paid, and funds under £1,000, are outside the new withholding process.

Business relief and agricultural relief do not apply to pension assets brought into the estate this way, even where they apply to other parts of the estate.

An illustration

The figures below are round numbers chosen to show how the arithmetic works. They are not a prediction about anyone's circumstances.

Take someone who dies after 6 April 2027, leaving everything to their adult children. They have a home worth £400,000, other savings and investments of £150,000, and £300,000 left in a defined contribution pension.

Under the old rules, the estate is the house plus the savings, so £550,000. The pension sits outside it. After the nil rate band of £325,000 and the residence nil rate band of £175,000, there is £50,000 above the allowances, taxed at 40%. Inheritance tax of £20,000.

Under the rules from April 2027, the pension is added, so the estate is £850,000. The same £500,000 of allowances applies, leaving £350,000 above the threshold. Inheritance tax of £140,000.

The difference in this illustration is £120,000, which is 40% of the pension. That is the shape of the change: pension money above the available allowances is now exposed to the same 40% rate as everything else.

A separate point worth knowing is that the residence nil rate band tapers away for larger estates. Adding a pension to an estate can push it over the taper threshold, which reduces that allowance and increases the bill by more than 40% of the pension alone. Whether that applies depends on the size of the estate.

What beneficiaries need to know

Two things change for the people who inherit.

Inheritance tax may be due on the pension. Personal representatives, meaning the executors or administrators of the estate, are responsible for reporting and paying it. This was not the original proposal. The government initially intended pension scheme administrators to handle it, and changed course after consultation.

Because personal representatives may not have estate money available to pay tax on a pension they cannot access, the legislation includes a process for handling this. Where they reasonably expect inheritance tax to be due, they can instruct the pension scheme to hold back part of the taxable benefits for a limited period and to pay the tax to HMRC before releasing the remainder. Beneficiaries can also ask the scheme to pay the tax attributable to their share directly. The detailed mechanics, including deadlines and the information schemes must provide, are set out in the legislation and HMRC's guidance.

Income tax may also be due, separately. This is not new, but it interacts with the change in a way people often miss. Where someone dies aged 75 or over, beneficiaries pay income tax at their own marginal rate on money they take out of an inherited pension. Where someone dies under 75, withdrawals are generally free of income tax.

So for someone who dies at 75 or older with a pension above the available allowances, inheritance tax can apply to the pot and income tax can then apply to what the beneficiary withdraws from what is left. The combined effect can take a substantial share of the pension. How large a share depends on the beneficiary's own income and tax position, which is why no single figure describes it.

Questions people are asking

These are the questions we hear most often. We have set out the considerations rather than the answers, because the answer depends entirely on individual circumstances and none of the below is a recommendation.

Should I start drawing my pension sooner?

Drawing money out reduces the pension and so reduces what is exposed to inheritance tax. But the money you withdraw is taxable as income when you take it, and once it is out of the pension it sits in your estate anyway unless it is spent or given away. Whether this helps or harms depends on your income tax position now, how long you expect to need the money, and what else you hold.

Should I make gifts instead?

Gifts have their own rules, including the seven-year rule and the annual exemption, and gifting money you may later need carries obvious risks.

Should I change who my pension is left to?

Nominations still matter, and for many people they have not been reviewed in years. Whether a change makes sense depends on who you want to benefit, their tax position, and how the pension fits with your will. Reviewing a nomination and changing one are different things.

Should I use life cover to meet the tax?

Some people hold cover written so that it pays out outside the estate to help meet an inheritance tax bill. Whether that is suitable, affordable and appropriately structured is a question for advice, not for a web page.

Does this affect my final salary pension?

Defined benefit schemes work differently and often pay a dependant's pension rather than a lump sum. The treatment is not the same and depends on your scheme's rules.

Where advice helps

The rules are now settled in outline, and there is time before April 2027. What the rules do not tell you is what any of it means for you, and that depends on the size and make-up of your estate, your income, your health, who you want to provide for, and what your will and pension nominations currently say.

We advise on retirement and pensions, inheritance tax and estate planning, and this change sits across all three.

This page is general information about the tax rules and does not constitute advice.

Last reviewed: 17 September 2026. Next review: Q1 2027.