You usually do not pay inheritance tax on a pension for deaths before 6 April 2027, because most pensions sit outside your estate. Income tax can still apply to the beneficiary if you die at 75 or over. From 6 April 2027, most unused pensions move inside the estate and can be taxed at 40%. This is general information for England and Wales, not advice.
Do you pay inheritance tax on a pension right now?
A pension is normally held under trust or scheme discretion, which is why it has sat outside the taxable estate. That keeps it separate from assets like your home or savings, which do count towards your nil-rate band of £325,000 and residence nil-rate band of up to £175,000 (how inheritance tax works; gov.uk, as at August 2026, subject to change).
This is the point most guides blur: the answer for a death today is different from the answer for a death from 2027. The rest of this page keeps the two apart.
What changes for pensions on 6 April 2027?
The table below sets the current position against the position from 6 April 2027, so you can see which one applies to your situation.
| Question | Death before 6 April 2027 | Death from 6 April 2027 |
|---|---|---|
| Is the unused pot inside your estate? | Usually no | Usually yes |
| Can 40% inheritance tax apply? | Not on the pension itself | Yes, above your thresholds |
| Pension left to a spouse or civil partner | Exempt | Exempt |
| Income tax for the beneficiary (age 75+) | Yes, at their own rate | Yes, at their own rate |
| Who reports and pays any inheritance tax | Not applicable to the pension | Your executors |
Source: gov.uk, Inheritance Tax on pensions technical note, as at August 2026, subject to change.
The nil-rate band (£325,000) and residence nil-rate band (up to £175,000) are frozen until 5 April 2031, a freeze extended at the Budget on 26 November 2025. Where a death from 2027 triggers both a 40% inheritance tax charge and income tax on the same pot, the combined effect can be heavy. We work that through in pensions and inheritance tax from 2027.
Do you pay income tax on an inherited pension?
| Age at death | Income tax for the beneficiary on withdrawals |
|---|---|
| Under 75 | Usually none, if paid out within scheme time limits |
| 75 or over | Income tax at the beneficiary's own rate (20%, 40% or 45%) |
Source: gov.uk, Tax on a private pension you inherit, as at August 2026, subject to change.
This income tax rule applies now and continues after 2027. From 6 April 2027 it can sit on top of the new inheritance tax charge, so a beneficiary could face 40% inheritance tax and then income tax on the balance. Annuities and defined benefit (final salary) pensions follow their own scheme rules, so it is worth checking each pension separately.
Does your spouse pay inheritance tax on your pension?
The spouse can usually keep the pot in a pension of their own and draw on it. If your spouse is 75 or over when they later die, income tax may apply to the next beneficiary in the same way. You name who inherits through the scheme's expression of wishes or nomination form, so keeping that current matters as much as your will.
What should you check now?
- Find every pension. List each pot, its provider and rough value, so nothing is missed when the time comes to value your estate.
- Check your nomination. Confirm the expression of wishes on each scheme names the people you intend, as this drives who inherits and how the pension is taxed.
- Note the spouse route. A pension left to a spouse or civil partner stays exempt, so consider how your pensions and will work together across both deaths.
- Weigh gifting other assets. The annual £3,000 exemption, £250 small gifts and the seven-year rule with taper on the tax can reduce a taxable estate over time (how much you can gift tax free).
- Take joined-up advice before large moves. Emptying a pension early can create an income tax bill now, so a financial adviser and your estate planner are best consulted together.
Many people weigh these choices as part of their wider estate planning. For a discreet look at your position, you can book a consultation or see our fixed pricing.
Frequently asked questions
Is a pension counted as part of your estate for inheritance tax?
For deaths before 6 April 2027, usually no. Most defined contribution pensions pass outside the estate, so they are not counted for the 40% inheritance tax charge. From 6 April 2027, most unused pension funds and lump sum death benefits are added to the estate and can be taxed above your available nil-rate bands (gov.uk, as at August 2026, subject to change).
Do you pay tax on an inherited pension before 75?
Usually not income tax. If the pension holder dies before 75, a beneficiary can normally draw a defined contribution pot free of income tax, as long as it is paid out within the scheme's time limits. For deaths before 6 April 2027 there is also generally no inheritance tax on the pension itself.
What tax applies if you die at 75 or over?
The beneficiary pays income tax at their own marginal rate (20%, 40% or 45%) on withdrawals from an inherited defined contribution pension. This applies whether the death is before or after April 2027. From 6 April 2027, a 40% inheritance tax charge can also apply to the pot, on top of that income tax.
Can children inherit a pension, and is it taxed?
Yes, you can nominate children or others through the scheme's expression of wishes. They can usually take a lump sum or keep the pot in beneficiary drawdown. Income tax follows the age-75 rule, and from 6 April 2027 inheritance tax may also apply where the pension does not pass to a spouse or civil partner.