Inheritance tax on pensions from April 2027: what changes
Figures correct for the 2026/27 tax year. Last checked against GOV.UK and HMRC on .
Information, not financial advice. Life Cashflow is not authorised by the FCA.
Short answer
Will my pension be subject to inheritance tax from April 2027?
For deaths on or after 6 April 2027, most unused pension funds and death benefits count towards the estate for inheritance tax. Death in service benefits and dependants' scheme pensions are excluded, and spouse, civil partner and charity exemptions remain. In Pat and Sandy's invented example, the planner's estimate is £252,374 on an estate including £690,843 of unused pension.
Open this example in the planner.In this example, Pat and Sandy are married and spend £36,000 a year. Their income and savings meet the spending, so Pat's £400,000 pension pot is never drawn. It passes to Sandy after Pat's death, and at the end of the plan, in 2052/53, the estate of £1,536,886 includes £690,843 of unused pension. The planner's inheritance tax estimate is £252,374, in today's prices. Pat and Sandy are an invented example, and the chart is an illustration of the planner's arithmetic, not a forecast.
Assumes 2.5% inflation a year and steady growth of 5% a year on pensions and ISAs, and 3% on cash and the home, before charges. Tax rules are those for 2026/27 and later years as now legislated, and can change. Real returns vary, and the value of investments can go down as well as up.
Open this example in the plannerDownload Pat and Sandy's example plan (a JSON file: in the planner, choose File, then Open a saved file)
Key facts
- From 6 April 2027 most unused pension funds and pension death benefits are included in the value of a person's estate for inheritance tax, under Finance Act 2026.
- Death in service benefits from a registered pension scheme, and dependants' scheme pensions, are excluded.
- What passes to a surviving spouse or civil partner, or to a registered charity, keeps the existing exemptions.
- Personal representatives report and pay any inheritance tax due on pensions, and can ask a scheme to hold back up to 50% of a beneficiary's benefits while it is worked out.
- The nil-rate band is £325,000 and the residence nil-rate band up to £175,000, both frozen until 5 April 2031, and the main rate is 40%.
- The planner includes unused defined contribution pots in its end-of-plan estimate from 2027/28, and the rule cannot be switched off.
For deaths on or after 6 April 2027, most unused pension funds and pension death benefits are counted in the value of a person's estate for inheritance tax. For deaths before then, most are outside it, because pension schemes usually decide who receives death benefits. The change is in Finance Act 2026, and HMRC's technical note sets out the detail.
What changes on 6 April 2027?
- Included. Most unused pension funds and pension death benefits, whether or not the scheme has discretion over who receives them.
- Excluded. Death in service benefits from a registered pension scheme, and dependants' scheme pensions, whatever kind of arrangement pays them. A dependant's or nominee's annuity bought together with the member's lifetime annuity is excluded too.
- Still exempt. What passes to a surviving spouse or civil partner, and to registered charities, under the existing exemptions.
- Who reports and pays. The personal representatives of the person who died, as part of the estate. They can ask a scheme to hold back up to 50% of a beneficiary's benefits while the tax is worked out, and the tax can be paid from the pension itself.
Income tax on inherited pensions is a separate question, decided mainly by whether the person who died was under 75. What happens to a pension when a partner dies? explains it.
Tax rules can change. These are the rules as legislated in Finance Act 2026 at the time of writing, and HMRC is publishing further guidance for April 2027.
How is inheritance tax on an estate worked out?
Inheritance tax is charged at 40% on the part of an estate above the tax-free threshold. The nil-rate band is £325,000. The residence nil-rate band adds up to £175,000 when a home goes to children or grandchildren and the estate is worth less than £2 million. Both are frozen until 5 April 2031.
A spouse or civil partner can inherit without inheritance tax, and a threshold the first partner does not use can be added to the survivor's. From 6 April 2027 an unused pension counts towards the value of the estate, so it can take an estate over the thresholds, or over the £2 million above which the residence nil-rate band is reduced.
| Nil-rate band | £325,000 |
|---|---|
| Residence nil-rate band | £175,000 |
| Residence band reduced above estate of | £2,000,000 |
| Rate | 40% |
| Unused pensions count in the estate | No |
What does the example show?
Pat and Sandy are an invented married couple with a home worth £500,000, £130,000 of savings and Pat's £400,000 SIPP. Their State Pensions, Sandy's final salary pension and their savings meet spending of £36,000 a year, so the pension is never drawn.
Pat is planned to 88 and Sandy to 92. When Pat dies, the pension passes to Sandy free of inheritance tax under the spouse exemption. At the end of the plan, in 2052/53, the planner's estate of £1,536,886 includes £690,843 of unused pension, and the estimate is £252,374, in today's prices. In today's prices Pat and Sandy's nil-rate bands come to £905,951 by then, because they are frozen until 5 April 2031 and the planner assumes they rise with inflation after that.
The second scenario is the same couple spending £60,000 a year, with everything else the same.
| In Pat and Sandy's example | Spending £36,000 a year | Spending £60,000 a year |
|---|---|---|
| Pension first drawn | Never | 2031/32 |
| Pension left at the end of 2052/53 | £690,843 | £18,167 |
| Estate at the end | £1,536,886 | £602,626 |
| Inheritance tax estimate | £252,374 | Nothing |
| Estate after the estimate | £1,284,512 | £602,626 |
| Income tax over the plan | £93,426 | £183,407 |
Spending more, Pat and Sandy's estate at the end is smaller and below their bands, so the estimate is nothing. Less is passed on, and more income tax is paid on the pension withdrawals during their lives.
The planner shows the arithmetic of each. It does not suggest spending more or less, and how much someone spends, gives away or leaves is personal. Inheritance tax and estate planning are areas where people often take regulated advice.
What this looks like in the planner
The picture at the top of this page is Pat and Sandy's Wealth view at £36,000 a year: the pension band grows in every year because it is never drawn, and a dashed line marks the first year after Pat's death. The Overview gives the inheritance tax estimate.
Open this example in the planner.In this example, the planner's overview shows an inheritance tax estimate of £252,374 for Pat and Sandy, on an estate of £1,536,886 at the end of 2052/53, in today's prices. From 6 April 2027 the estimate includes unused pensions, and the planner has no setting to leave them out. Pat and Sandy are an invented example, and the overview is an illustration of the planner's arithmetic, not a forecast.
Assumes 2.5% inflation a year and steady growth of 5% a year on pensions and ISAs, and 3% on cash and the home, before charges. Tax rules are those for 2026/27 and later years as now legislated, and can change. Real returns vary, and the value of investments can go down as well as up.
Open this example in the plannerDownload Pat and Sandy's example plan (a JSON file: in the planner, choose File, then Open a saved file)
The Compare view puts the two levels of spending side by side, with the inheritance tax estimate counted in lifetime tax.
Open this example in the planner.In this example, the same couple spends £36,000 or £60,000 a year, with everything else the same. At £60,000 the pension is drawn from 2031/32 and £18,167 of it is left at the end. Net worth at the end of the plan is £1,536,886 or £602,626, and lifetime tax, including the inheritance tax estimate, is £345,800 or £183,407, in today's prices. Pat and Sandy are an invented example, and the table is an illustration of the planner's arithmetic, not a forecast.
Assumes 2.5% inflation a year and steady growth of 5% a year on pensions and ISAs, and 3% on cash and the home, before charges. Tax rules are those for 2026/27 and later years as now legislated, and can change. Real returns vary, and the value of investments can go down as well as up.
Open this example in the plannerDownload Pat and Sandy's example plan (a JSON file: in the planner, choose File, then Open a saved file)
Open Pat and Sandy's example in the planner, open it on the Overview, or compare the two. The example is invented, and its growth rates are assumptions: real returns vary, and the value of investments can go down as well as up. The estimate is the arithmetic of the planner's simplified rules, not a calculation of tax anyone will owe.
The rule cannot be switched off in the planner, so it cannot show the same estate with and without pensions. For deaths before 6 April 2027, most unused pension funds are outside the estate.
What does the planner leave out here?
- Gifts, trusts and reliefs. Lifetime gifts and the seven-year rule, trusts, business and agricultural relief, and the reduced 36% rate for estates that leave at least 10% to charity are not modelled.
- Who inherits. The estimate assumes the home goes to children or other direct descendants, so the residence nil-rate band applies, and that the first partner's unused bands pass to the survivor in full.
- Income tax for the people who inherit. Income tax on pension money paid out after a death at 75 or over is not part of the estimate.
- Excluded benefits and incomes. Death in service benefits are not modelled, and defined benefit pensions and annuities are incomes in the planner, so nothing is added for them.
- One estimate, at the end. The estimate is worked out once, at the end of the plan, at the ages each person is planned to.
What the planner simplifies or leaves out lists the rest.
Where can I get free guidance about inheritance tax?
GOV.UK explains how inheritance tax works, and MoneyHelper gives free, impartial guidance on money and pensions. Pension Wise offers free guidance appointments about the options for a defined contribution pension to people aged 50 or over. Personal advice on inheritance tax and estate planning comes from a regulated adviser, usually for a fee, and the FCA Register shows whether a firm is authorised. Financial guidance and advice explains the difference.
Change the inputs to your own in the planner to see the same estimate for your own figures. The planner simplifies some things, and what the planner simplifies or leaves out lists them.
Change the inputs to your own in the planner to see the inheritance tax estimate for your own figures, with pensions included from April 2027.
Open the plannerFrequently asked questions
Can my children inherit my pension?
A defined contribution pension can usually be paid to the people the member nominated, which can include children, though the scheme can pay someone else in some cases. A defined benefit pension can usually only be paid to a dependant, such as a spouse, civil partner or child under 23. From 6 April 2027 unused pension funds also count towards the estate for inheritance tax, and income tax may be due on what is paid, depending on the age of the person who died.
Is a pension left to a husband, wife or civil partner taxed?
What passes to a spouse or civil partner is exempt from inheritance tax under the existing exemption, which applies where they are long-term UK residents, and that does not change in April 2027. Income tax depends on the age of the person who died. If they died before 75, money from an inherited drawdown fund is usually tax-free; if they were 75 or over, it is taxed as the receiver's income.
Who pays the inheritance tax on a pension?
The personal representatives of the person who died report and pay any inheritance tax due on unused pension funds and death benefits, as part of the estate. HMRC's technical note says they can ask a pension scheme to hold back up to 50% of a beneficiary's benefits while the tax is worked out, and that the tax can be paid from the pension itself.
Is income tax paid as well as inheritance tax on an inherited pension?
It can be. If the person who died was 75 or over, payments from their pension are taxed as the receiver's income. HMRC's technical note says that where inheritance tax is paid on pension death benefits, the part of the benefits matching that tax does not count towards the receiver's taxable income. The planner's estimate does not include income tax that the people who inherit may pay.
What happens to the estimate if more of the pension is spent?
In the planner the estimate is worked out on what is left at the end of the plan, so a smaller estate gives a smaller estimate, and less is passed on. In Pat and Sandy's invented example, spending £60,000 a year instead of £36,000 draws most of the pension, the estate at the end is £602,626 and the estimate is nothing, against £1,536,886 and £252,374, in today's prices, and more income tax is paid along the way.
Does the planner apply the April 2027 rule?
Yes. From the 2027/28 tax year the planner includes unused defined contribution pension pots in its end-of-plan estimate, and the rule cannot be switched off, so a plan cannot show the same estate with and without it. Defined benefit pensions and annuities are incomes in the model, not pots, so nothing is added for them. Gifts, trusts and most reliefs are not modelled.
Try this example in the planner
Pat and Sandy's example opens on the Wealth view, with the pension never drawn, next to the same couple spending £60,000 a year. The Overview shows the inheritance tax estimate, and the Compare view shows both.
The example is invented. It opens as a scenario of its own that you can change, and anything of yours that is open stays as it is.
Download Pat and Sandy's example plan as a JSON file, and open it in the planner with File, then Open a saved file.
Sources
Checked against these sources on , for the 2026/27 tax year.
- Inheritance Tax on unused pension funds and death benefits (HMRC policy paper, GOV.UK) (opens in a new tab) (gov.uk)
- Inheritance Tax: unused pension funds and death benefits (HMRC, GOV.UK) (opens in a new tab) (gov.uk)
- Inheritance Tax on pensions: technical note (HMRC, GOV.UK) (opens in a new tab) (gov.uk)
- Inheritance Tax (GOV.UK) (opens in a new tab) (gov.uk)
- Inheritance Tax thresholds and interest rates (HMRC, GOV.UK) (opens in a new tab) (gov.uk)
- Tax on a private pension you inherit (GOV.UK) (opens in a new tab) (gov.uk)