Updated: September 2026
A major change to the way pensions are treated for inheritance tax is coming in April 2027.
At the moment, many unused pension funds can be passed on outside your estate for inheritance tax purposes. This has made pensions particularly valuable for people who expect to leave some of their retirement savings behind.
From 6 April 2027, most unused pension funds and pension death benefits will instead be included when calculating the value of your estate for inheritance tax.
The change has now been passed into law through the Finance Act 2026, so this is no longer simply a government proposal.
Quick answer: From 6 April 2027, most unused pension funds and pension death benefits will count towards your estate for inheritance tax. This does not mean everyone inheriting a pension will pay 40% tax. Your estate still benefits from the normal inheritance tax allowances and exemptions, including the spouse or civil partner exemption where applicable.
For people with a sizeable pension alongside a home, savings or investments, however, the change could significantly alter their inheritance tax position.
Here’s what is changing, who is likely to be affected and what you should consider before April 2027.
In this guide
- What changes in April 2027
- Which pensions will be affected
- How the inheritance tax thresholds work
- What happens if your spouse inherits your pension
- Whether beneficiary nominations still matter
- How inheritance tax and income tax can interact
- Whether you should withdraw pension money before 2027
- What you can do now to prepare
What is changing to inheritance tax on pensions?
Under the current rules, many unused pension funds sit outside a person’s estate for inheritance tax purposes.
This gives pensions different inheritance tax treatment from assets such as:
- your home
- cash savings
- investments outside a pension
- many other valuable assets
From 6 April 2027, most unused pension funds and pension death benefits will instead be brought within the value of the deceased person’s estate for inheritance tax.
HMRC refers to the pension assets caught by the new rules as “notional pension property”.
The legislation was included in the Finance Act 2026, which received Royal Assent on 18 March 2026.
You can read the Government’s detailed explanation in HMRC’s technical note on inheritance tax and pensions.
When do the new pension inheritance tax rules start?
The key date is 6 April 2027.
Importantly, it is the date the pension member dies, not the date the beneficiaries eventually receive the pension, that determines which rules apply.
If someone dies on 5 April 2027, the current rules apply even if the pension provider pays the beneficiaries after 6 April.
If someone dies on or after 6 April 2027, the new rules apply.
Are the pension inheritance tax changes definitely happening?
Yes.
When the change was originally announced at the Autumn Budget in October 2024, it was a government proposal and consultation followed.
That is no longer the position.
The changes were legislated through the Finance Act 2026, which received Royal Assent on 18 March 2026.
HMRC has since published detailed technical information about how the new system will operate and further guidance is being developed ahead of April 2027.
HMRC published its latest substantial update, Technical Note 2, on 27 August 2026.
Read HMRC’s latest inheritance tax on pensions Technical Note 2.
This distinction matters because some older articles online still describe the April 2027 changes as merely “proposed”.
Does this mean everyone will pay inheritance tax on their pension?
No.
This is probably the most important misconception to clear up.
Bringing a pension into your estate does not mean that your beneficiaries automatically lose 40% of it.
Inheritance tax is calculated across the estate after applicable allowances, exemptions and reliefs are taken into account.
The standard inheritance tax nil-rate band is £325,000.
There is also a residence nil-rate band of up to £175,000 when a qualifying home is left to direct descendants, subject to the relevant conditions.
That means an individual may potentially be able to pass on as much as £500,000 before inheritance tax becomes payable.
Unused allowances can also potentially transfer between spouses and civil partners. In the right circumstances, a qualifying couple may therefore eventually be able to pass on as much as £1 million before inheritance tax.
However, the £1 million figure is not a universal allowance. Whether the residence nil-rate band is available depends on factors including who inherits the home, and it begins to taper for estates worth more than £2 million.
If you’re unfamiliar with these allowances, read our guide to how to avoid inheritance tax in the UK legally, where we explain the thresholds, exemptions and estate-planning options in more detail.
You can also check the current inheritance tax thresholds directly on GOV.UK.
A simple example
Imagine someone dies after 6 April 2027 with:
- a home worth £400,000
- £100,000 in savings and investments
- £250,000 remaining in a defined contribution pension
Ignoring debts, exemptions and other complications for a moment, the assets outside their pension are worth £500,000.
Under the new rules, the £250,000 pension may also need to be included when calculating inheritance tax.
That could bring the total estate considered for inheritance tax purposes to:
£750,000
This does not mean £750,000 is taxed at 40%.
The estate first needs to take account of the relevant allowances, exemptions, debts and reliefs.
But it illustrates why someone who previously thought their estate was comfortably below the inheritance tax threshold may need to calculate it again once their pension is included.
Who is most likely to be affected?
The change is particularly relevant if you expect to die with a substantial amount remaining in your pension.
It could also affect people who don’t necessarily think of themselves as particularly wealthy.
For example, someone might own a mortgage-free home that has increased considerably in value over several decades and have £200,000 or £300,000 remaining in a pension.
Under the current rules, much of that pension wealth may sit outside their estate for inheritance tax.
From April 2027, combining the:
- property
- pension
- savings
- investments
- other relevant assets
could produce a very different inheritance tax calculation.
This is why it will become increasingly important to think about your total estate, rather than treating your pension as something completely separate.
How many estates will actually be affected?
Most estates are still expected to pay no inheritance tax after the rules change.
HMRC estimates that around 213,000 estates will contain inheritable pension wealth in 2027/28.
Of those, the Government estimates that around:
- 10,500 estates will become liable for inheritance tax that would not otherwise have paid it
- 38,500 estates will pay more inheritance tax than they would have under the previous rules
HMRC estimates that among affected estates, including pension assets could increase the average inheritance tax liability by around £34,000.
These figures are projections rather than guarantees. HMRC itself notes that people may change their behaviour as a result of the reforms.
See HMRC’s official impact assessment for the pension inheritance tax changes.
Which pensions will be affected?
The new rules are broader than simply applying to untouched SIPPs.
They can affect unused funds and death benefits from both:
- defined contribution pensions
- defined benefit pensions
For a defined contribution pension, such as a SIPP, personal pension or many workplace pensions, unused money remaining in the pension at death may need to be considered.
Certain lump-sum death benefits associated with defined benefit schemes can also fall within the new rules.
The exact treatment depends on the type of pension and the benefit being paid.
If you’ve accumulated pensions from several jobs and aren’t even sure where they all are, this is a good reason to get organised now. Our guide to how to find an old or lost pension from a previous job explains how to trace old pensions for free using the Government’s Pension Tracing Service.
Are any pension benefits excluded?
Yes.
Not every pension-related payment is being brought into the new inheritance tax treatment.
Importantly, all death-in-service benefits payable from registered pension schemes will be excluded from the value of the estate under these reforms.
Certain continuing annuities and other exempt benefits can also sit outside the new process.
Because different pension arrangements can produce very different benefits after death, don’t assume every payment associated with a pension will receive identical inheritance tax treatment.
What happens if you leave your pension to your husband, wife or civil partner?
The existing inheritance tax exemption between qualifying spouses and civil partners remains extremely important.
Assets passing between spouses or civil partners are generally exempt from inheritance tax, subject to the applicable rules.
So if pension benefits pass to your surviving spouse or civil partner and the exemption applies, bringing the pension within your estate does not automatically create inheritance tax on those pension benefits.
The bigger inheritance tax issue for many couples may come later, when the surviving spouse or civil partner dies and assets ultimately pass to children, grandchildren or other beneficiaries.
That’s one reason estate planning should look beyond the first death.
What if I leave my pension to my children?
Children do not benefit from the same inheritance tax exemption that applies between spouses and civil partners.
That doesn’t mean a child automatically pays 40% tax on an inherited pension.
Instead, the pension becomes part of the wider inheritance tax calculation alongside the deceased person’s other relevant assets.
The amount of inheritance tax due will therefore depend on the total estate and the allowances, exemptions and reliefs available.
For families where a parent owns a valuable home and has substantial pension savings remaining, this is where the April 2027 change could become particularly significant.
Does your pension beneficiary nomination still matter?
Yes.
Many pension schemes allow you to complete an expression of wish or beneficiary nomination telling the pension provider who you would like to receive your pension benefits after you die.
Under many schemes, trustees retain discretion over who ultimately receives those benefits.
From April 2027, trustee discretion will generally no longer be enough by itself to keep the pension outside the estate for inheritance tax.
But your beneficiary nomination is still important.
It helps the pension scheme understand who you want to receive your pension and can make your wishes much clearer after your death.
Review your nominations particularly after:
- marriage
- divorce
- separation
- the death of a partner
- having children
- having grandchildren
- major changes to your finances
It’s surprisingly easy to update a will while forgetting that a pension provider still has an expression of wish completed many years ago.
Does your will control who receives your pension?
Not necessarily.
Pensions and wills don’t always work in the same way.
Many pension schemes use their own beneficiary nomination and trustee decision-making process rather than simply following the instructions in your will.
That’s why reviewing both your will and your pension beneficiary nominations matters.
They should form part of the same overall estate plan even though they perform different jobs.
If you’re going through your retirement paperwork generally, our Ultimate Retirement Checklist covers wills, pensions, State Pension, retirement income and other practical jobs worth reviewing before retirement.
Who will deal with inheritance tax on the pension?
The administration is more complicated than simply adding the pension balance to a form.
Under the new system, personal representatives, normally the executors or administrators dealing with the estate, will need to identify relevant pension schemes and obtain information about the pension benefits.
Pension scheme administrators and personal representatives will then exchange information so that the inheritance tax position can be established.
HMRC introduced specific information-sharing regulations in July 2026 in preparation for the new system.
Where inheritance tax is expected to be due, personal representatives will have mechanisms that can allow some of the pension money itself to be used to pay the tax.
Can a pension provider hold back money while inheritance tax is calculated?
In certain circumstances, yes.
The new process allows personal representatives to instruct a pension scheme administrator to withhold up to 50% of taxable pension benefits for up to 15 months from the date of death where inheritance tax may be due.
There is also a pensions direct payment mechanism allowing pension money to be paid directly towards the inheritance tax liability before remaining benefits are released.
These arrangements are designed partly to avoid executors having to find the money to pay all the inheritance tax from elsewhere while pension assets remain inaccessible.
HMRC is continuing to develop guidance and supporting tools ahead of April 2027.
Could an inherited pension face both inheritance tax and income tax?
Potentially.
Inheritance tax and income tax on inherited pensions are separate issues.
The April 2027 reforms do not simply replace the existing income tax rules for pension death benefits.
Under the current pension rules, factors such as the pension holder’s age at death can affect the income tax treatment when a beneficiary later accesses inherited pension money.
That means there can be situations where:
- the pension is relevant when calculating inheritance tax on the estate, and
- income tax is also relevant when the beneficiary subsequently accesses pension benefits.
There are provisions intended to deal with the interaction between the two taxes, but this is one of the more complicated parts of the new regime.
HMRC has said further information on the interaction between inheritance tax and income tax is expected in additional technical guidance.
If substantial pension wealth is involved, this is an area where individual tax or regulated financial advice may be worthwhile.
Should I withdraw my pension before April 2027?
Not simply because the rules are changing.
This could be one of the most expensive mistakes people make in response to headlines about pension inheritance tax.
Money held inside a pension has valuable tax advantages.
Taking a large pension withdrawal could:
- trigger an income tax bill
- push some of your income into a higher tax band
- reduce the money available for your retirement
- move cash into your bank account where it may still form part of your estate
- change how your retirement savings are invested
In other words, taking £100,000 out of your pension doesn’t automatically make £100,000 disappear for inheritance tax purposes.
You may simply have turned pension money into cash held elsewhere in your estate.
Your pension’s primary purpose should still be to fund your retirement.
If you’re considering withdrawals, our guide to how to maximise your retirement income is a better starting point than making decisions purely around inheritance tax.
Should I spend my pension before my ISA?
This question is likely to become more common because the April 2027 changes alter one of the reasons some retirees historically chose to spend non-pension assets first.
But there isn’t a universal answer.
Pensions and ISAs have different tax treatments during your lifetime and after death.
ISAs generally provide freedom from UK income tax and capital gains tax while the money remains inside the ISA, but ISA assets normally form part of your estate for inheritance tax.
Pensions provide different advantages, including pension tax relief and tax-efficient investment growth.
From April 2027, the inheritance tax difference between pensions and other assets becomes less pronounced.
That may change the optimal withdrawal order for some retirees, particularly those with estates likely to face inheritance tax.
But inheritance tax is only one factor.
Your income needs, income tax position, investment strategy, longevity and beneficiaries all matter too.
Should you give money away instead?
Lifetime gifting can be a legitimate part of estate planning, but it isn’t as simple as transferring money to your children the day before you die.
Inheritance tax has specific rules around:
- annual gift exemptions
- gifts between spouses
- gifts from regular surplus income
- potentially exempt transfers
- the length of time between some gifts and death
Most importantly, don’t give away money you may later need for your own retirement, housing or care.
Our guide to how to avoid inheritance tax in the UK legally explains the main gifting rules and other legitimate inheritance tax planning options.
For the definitive rules, you can also read GOV.UK’s guidance on gifts and inheritance tax.
What should you do before April 2027?
There is no reason to panic, but there are some sensible jobs worth doing.
1. Estimate the value of your total estate
Don’t look only at your bank balance.
Consider your:
- home
- pensions
- savings
- ISAs
- investments
- other relevant assets
- outstanding debts
You may discover that including your pension moves your potential estate much closer to the inheritance tax thresholds than you expected.
2. Find all your pensions
If you’ve worked for several employers, make sure you actually know where all your pension savings are.
This will help you understand your own finances and could eventually make things much easier for your executors.
If you’ve lost track of an old workplace pension, follow our guide to finding an old or lost pension from a previous job.
3. Check your beneficiary nominations
Contact your pension providers or log into your pension accounts and check who you’ve nominated.
Make sure your nominations still reflect what you actually want.
4. Review your will
Your pension nomination and will aren’t interchangeable, but they should make sense together as part of your estate planning.
Marriage, divorce, bereavement, children, grandchildren and major changes in wealth are all sensible reasons to review your arrangements.
5. Check how much you actually need for retirement
Don’t let inheritance tax planning undermine your own retirement.
Before deciding to give money away or withdraw pensions early, work out what you may need yourself.
Our Retirement Fund Calculator can help you estimate how long your savings might last based on your expected spending, investment returns and inflation.
You can also read How Much Money Do You Need to Retire Comfortably in the UK? for a broader look at retirement costs.
6. Consider advice if the numbers are significant
Not everybody needs a financial adviser simply because these rules are changing.
But if you have a sizeable pension, valuable property and other investments, the interaction between retirement income, inheritance tax and estate planning can become complicated.
Our guide Do you need a financial advisor for retirement planning? Pros and cons explains when professional advice may be worth paying for.
What should your family know about your pensions?
There’s another practical issue that has nothing to do with tax planning.
Would your executor even know where your pensions are?
You don’t need to give family members passwords or unrestricted access to your accounts.
But keeping a secure record of:
- pension provider names
- pension policy numbers
- adviser details, if applicable
- beneficiary nominations
- important financial documents
can make administering your estate considerably easier.
The new inheritance tax regime makes this particularly relevant because personal representatives may need to identify and contact pension schemes when calculating the estate.
Frequently asked questions
Are pensions currently subject to inheritance tax?
Many unused pension funds are currently outside the deceased person’s estate for inheritance tax purposes, although there are exceptions.
From 6 April 2027, most unused pension funds and pension death benefits will instead be brought within the estate.
When does inheritance tax on pensions change?
The new rules apply where the pension scheme member dies on or after 6 April 2027.
If the member dies before that date, the current rules apply even if the pension is paid to beneficiaries afterwards.
Will inherited pensions be taxed at 40% from April 2027?
Not automatically.
Inheritance tax is generally charged at 40% on the taxable portion of an estate after applicable allowances, exemptions and reliefs have been considered.
Many estates will continue to pay no inheritance tax.
Are pensions inherited by a spouse subject to inheritance tax?
Transfers to a qualifying spouse or civil partner are generally exempt from inheritance tax, subject to the applicable rules.
That means leaving pension benefits to a spouse does not automatically result in inheritance tax being charged on them.
What if my children inherit my pension?
There is no equivalent general spouse exemption when pension benefits pass to children.
The pension may therefore contribute to the inheritance tax calculation alongside the deceased person’s other assets.
Whether tax is actually due depends on the value of the estate and available allowances and reliefs.
Are death-in-service benefits included?
All death-in-service benefits payable from registered pension schemes are excluded from the value of the estate under the April 2027 pension inheritance tax reforms.
Will my State Pension be included in my estate?
No pension pot representing your future State Pension payments is added to your estate.
The State Pension works differently from a personal or workplace pension. It is a government benefit based largely on your National Insurance record rather than an investment pot that you own.
If you’re unsure what State Pension you may receive, you can check your State Pension forecast on GOV.UK and read our guide to understanding the UK State Pension.
Should I cash in my pension before April 2027?
Don’t cash in a pension solely because of the inheritance tax change without considering the wider consequences.
A large withdrawal could trigger income tax and the money may still form part of your estate once it is outside the pension.
You also need to make sure you retain enough money to fund your retirement.
Do I need to change my will because of the pension inheritance tax rules?
Not necessarily, but the change is a sensible reason to review your overall estate planning.
Check your will alongside your pension beneficiary nominations and the estimated value of your estate.
For more complex estates, consider obtaining appropriate legal, tax or regulated financial advice.
Pension inheritance tax checklist
Before April 2027:
- Find out how much is currently in your pensions.
- Estimate the value of your wider estate.
- Check your pension beneficiary nominations.
- Review your will if it is outdated.
- Make sure your executors could identify your pension providers.
- Don’t withdraw or give away retirement money purely to avoid tax.
- Consider professional advice if your estate could face a significant inheritance tax liability.
Final thoughts
The pension inheritance tax changes starting in April 2027 represent a significant shift in UK retirement and estate planning.
Pensions remain an important and tax-efficient way to save for retirement.
But if you expect to leave substantial pension savings behind, they will no longer offer the same inheritance tax treatment from April 2027.
For many people, the biggest practical change is simple:
When estimating the value of your estate, you may now need to count your pension too.
That is particularly important for homeowners who have built up sizeable pension savings alongside their property.
There is no need to make rushed decisions.
Instead, use the time before April 2027 to understand what pensions you have, estimate your estate, check your beneficiaries, review your will and make sure your retirement plan still puts your own financial security first.
This article is for general information only and does not constitute financial, tax or legal advice. Tax and pension rules can change and their effect depends on your individual circumstances.
Official sources
- HMRC: Inheritance Tax on pensions technical note
- HMRC: Inheritance Tax on Pensions Technical Note 2, August 2026
- GOV.UK: Inheritance Tax
- GOV.UK: Gifts and Inheritance Tax
- HMRC: Inheritance Tax on unused pension funds and death benefits
