In most cases you do not currently pay inheritance tax on a pension, because most pension funds sit outside the deceased person's estate. That position changes from 6 April 2027, when most unused pension funds and death benefits will be brought within the value of the estate for inheritance tax (gov.uk, Autumn Budget 2024, as at August 2026, subject to change).
This guide explains the rules as they stand in August 2026, what the announced change does, which pensions are affected, and the practical points many people are weighing up ahead of the start date. It covers England and Wales, with notes where other UK nations differ. Figures are current as at August 2026 and are subject to change.
Do you pay inheritance tax on a pension now?
For deaths before 6 April 2027, most pensions are not counted as part of the estate for inheritance tax. Whether any income tax applies to the person who inherits the pot usually depends on the age at which the pension holder died, rather than on inheritance tax. Because pensions have generally sat outside the estate, they have often been passed on without an inheritance tax charge, which is one reason the rules are being reviewed (gov.uk, tax on pension death benefits, as at August 2026, subject to change).
Inheritance tax itself is charged at a standard rate of 40% on the part of an estate above the available tax-free thresholds, or 36% where at least 10% of the net estate passes to charity (gov.uk/inheritance-tax, as at August 2026, subject to change). Our wider guide to inheritance tax sets out how those thresholds work across a whole estate.
What changes on 6 April 2027
From 6 April 2027, most unused pension funds and death benefits will be included in the value of the estate when working out inheritance tax (gov.uk, as at August 2026, subject to change). A pension pot that is left unspent at death may add to the estate and could push it above the tax-free thresholds, where before it would not have counted.
Government figures published alongside the consultation response estimate that, of around 213,000 estates with inheritable pension wealth in 2027 to 2028, about 10,500 estates would face an inheritance tax bill where previously they would not, and roughly 38,500 would pay more than before (gov.uk, summary of responses, as at August 2026, subject to change). These are official estimates, not a prediction for any individual estate.
Which pensions are affected, and which are not
The change is aimed at unused funds and lump-sum death benefits from most registered pension schemes. Some benefits are set to stay outside the scope of the new rules. The table below summarises the announced treatment.
| Type of benefit | Announced treatment from 6 April 2027 |
|---|---|
| Unused defined contribution pension funds | Expected to be within the estate for inheritance tax |
| Lump-sum death benefits from most registered schemes | Expected to be within the estate for inheritance tax |
| Death in service benefits from a registered scheme | Excluded, remains outside scope |
| Dependant's scheme pension from a defined benefit or collective money purchase scheme | Excluded, remains outside scope |
Source: gov.uk, inheritance tax on pensions summary of responses, as at August 2026, subject to change. The detailed rules are still being finalised.
Where a pension passes to a surviving spouse or civil partner, the usual spouse exemption is expected to apply, so transfers between spouses and civil partners are generally free of inheritance tax in the same way as other assets (gov.uk, as at August 2026, subject to change).
The thresholds that decide whether tax is due
Whether a pension adds to an inheritance tax bill depends on the estate's total value against the available allowances. The main figures are below.
| Allowance or rate | Level (August 2026) |
|---|---|
| Nil-rate band | £325,000 |
| Residence nil-rate band | Up to £175,000 |
| Combined potential, married couple leaving a home to descendants | Up to £1,000,000 |
| Standard inheritance tax rate | 40% |
| Reduced rate, 10% or more of net estate to charity | 36% |
| Residence nil-rate band taper threshold | £2,000,000 |
Source: gov.uk/inheritance-tax, as at August 2026, subject to change. The residence nil-rate band is reduced by £1 for every £2 by which the estate exceeds £2,000,000. These thresholds are frozen until 5 April 2031, the end of the 2030 to 2031 tax year, as confirmed at the Autumn Budget 2025 (gov.uk, Budget 2025 overview of tax legislation and rates, as at August 2026, subject to change).
Because these thresholds are frozen while pension pots are being added into estates, some households that would not have expected an inheritance tax bill may find they come within reach of one. This overlap between frozen thresholds and pensions being counted in the estate is why the change has been widely noted.
Who reports and pays the tax
Under the announced approach, personal representatives, the people administering the estate, will be responsible for reporting and paying any inheritance tax due on unused pension funds and death benefits. Pension beneficiaries can become jointly and severally liable for the tax on the funds they receive from the point they are appointed. The government has said it will provide a route for personal representatives to direct scheme administrators to pay the inheritance tax due from the pension itself (gov.uk, summary of responses, as at August 2026, subject to change).
What the change may mean for planning
The change does not take effect until 6 April 2027, and the detailed legislation is still being finalised, so firm decisions are hard to make on incomplete rules. That said, a few general points stand out.
- Reviewing, not rushing. A pension left untouched as a legacy has, until now, generally passed outside the estate. From 6 April 2027 that assumption may no longer hold, which is one reason many people are reviewing beneficiary nominations and overall plans.
- The spouse position. Transfers to a spouse or civil partner are generally expected to remain exempt, so for many couples the immediate question is what happens on the second death.
- Gifts and allowances. Existing tools, such as the annual gift exemption of £3,000 and gifts out of surplus income, continue to sit alongside pensions within a wider plan (gov.uk, gifts, as at August 2026, subject to change).
- Whole-estate view. Pensions are one asset among several. Considering them next to property, savings and any business or agricultural assets tends to give a clearer picture than looking at the pension alone.
Because the interaction between pensions, income tax on inherited funds and inheritance tax can be involved, and because it turns on your own circumstances, this is an area where many people take advice from an FCA-authorised financial adviser alongside estate planning. Our estate planning guide explains how these pieces fit together, and if you would value a conversation you can book a consultation or see our pricing.
Scotland and Northern Ireland
Inheritance tax is a UK-wide tax, so the pension change applies across the United Kingdom. The wider law that surrounds an estate differs by nation. Scotland has its own succession law, including legal rights for a spouse and children, and uses confirmation rather than a grant of probate. Northern Ireland has a separate but broadly similar system to England and Wales. Where an estate touches more than one jurisdiction, advice in each is often sensible.
- Most pensions are outside the estate for inheritance tax for deaths before 6 April 2027 (gov.uk).
- From 6 April 2027, most unused pension funds and death benefits fall within the estate (gov.uk).
- Nil-rate band £325,000; residence nil-rate band up to £175,000; standard rate 40% (gov.uk).
- Death in service benefits and certain dependants' scheme pensions are excluded from the change (gov.uk).
Frequently asked questions
Do you pay inheritance tax on a pension?
For deaths before 6 April 2027, most pensions are not part of the estate and generally do not attract inheritance tax. From 6 April 2027, most unused pension funds and death benefits will be included in the estate for inheritance tax (gov.uk, as at August 2026, subject to change).
When do the new pension inheritance tax rules start?
The change applies to deaths on or after 6 April 2027. It was announced at the Autumn Budget 2024, and the detailed rules are being finalised, so aspects may still change before the start date (gov.uk, as at August 2026, subject to change).
Are pensions left to a spouse taxed?
Transfers to a spouse or civil partner are generally exempt from inheritance tax, and this spouse exemption is expected to apply to pensions in the same way as to other assets. The position on the second death is often where the question of inheritance tax arises (gov.uk, as at August 2026, subject to change).
Which pension benefits are excluded from the change?
Death in service benefits payable from a registered pension scheme, and certain dependants' scheme pensions from defined benefit or collective money purchase schemes, are set to remain outside the scope of the new rules (gov.uk, as at August 2026, subject to change).
Who pays the inheritance tax on a pension from 2027?
Personal representatives will be responsible for reporting and paying inheritance tax on unused pension funds and death benefits, and beneficiaries can become jointly liable for the tax on funds they receive. A mechanism is planned to let the tax be paid from the pension itself (gov.uk, as at August 2026, subject to change).
Should I take my pension out to avoid inheritance tax?
This is general information rather than advice, and drawing a pension early can create income tax and other consequences that may outweigh any inheritance tax saved. Because the outcome depends on individual circumstances and the rules are still being finalised, many people take advice from an FCA-authorised financial adviser before making changes (gov.uk, tax on your private pension, as at August 2026, subject to change).