Inheritance Tax Changes 2027: Pensions and Reform

From 6 April 2027, the government plans to bring most unused pension funds and pension death benefits within the value of a person's estate for inheritance tax, removing a treatment that had let many pensions pass free of it (gov.uk, published 21 July 2025, as at June 2026, subject to change).

For years, a pension left unspent at death often sat outside inheritance tax, so some people drew on other savings first and kept the pension as a way to pass on wealth. The 2027 reform is designed to change that. This page explains what the change covers, who it may affect, and what stays the same. For the wider picture, see our Inheritance Tax Explained guide and the Inheritance Tax Thresholds and Allowances 2026/27. Figures are current as at June 2026 and are subject to change.

What changes from April 2027?

From 6 April 2027, most unused pension funds and pension death benefits are set to be included in the value of the deceased's estate when inheritance tax is worked out (gov.uk, as at June 2026, subject to change). This applies whether or not scheme administrators have discretion over who receives the money. Where the total estate then exceeds the available thresholds, inheritance tax may be due at the usual rate.

Two features of the reform matter in practice. Responsibility for reporting and paying any inheritance tax on the pension is set to sit with the personal representatives of the estate, rather than the pension scheme. And the rules include a mechanism letting personal representatives ask the scheme to hold back part of the benefits, or pay the tax, before releasing the rest (gov.uk, consultation outcome, as at June 2026, subject to change).

Who is likely to be affected?

The change is most relevant to people who expect to leave a pension largely unspent and whose estate, once the pension is added, could pass the tax-free thresholds. HMRC estimates that of around 213,000 estates with inheritable pension wealth in 2027 to 2028, about 10,500 could face an inheritance tax liability where they would not have before, and around 38,500 could pay more, with the average liability rising by roughly £34,000 once pension assets are included (gov.uk, as at June 2026, subject to change).

Whether a particular estate is affected depends on its total value against the nil-rate band and, where relevant, the residence nil-rate band. Many estates that pass entirely to a surviving spouse or civil partner will still see no immediate charge, because those transfers are generally exempt. It can be worth discussing your own position with a qualified professional.

What is not changing?

Several important points stay the same under the plans. Transfers to a surviving spouse or civil partner are generally expected to remain exempt, including pension death benefits passing to them. Death in service benefits paid from a registered pension scheme are set to be excluded from the estate for inheritance tax. And the headline rates and tax-free bands themselves are not altered by this pension measure (gov.uk, as at June 2026, subject to change).

Source: gov.uk, unused pension funds and death benefits, published 21 July 2025, as at June 2026, subject to change.

A worked example (illustration only)

An illustration can show how adding a pension to the estate may change the picture. Take a single person, not married, who dies after 6 April 2027 leaving a home and other assets of £400,000, plus an unused defined contribution pension pot of £250,000, so £650,000 in total. The figures below are a general illustration using June 2026 thresholds, not a calculation for any individual.

Thresholds and rates from gov.uk/inheritance-tax, as at June 2026, subject to change. Nil-rate band £325,000, residence nil-rate band up to £175,000, standard rate 40%. This is a general illustration, not advice.

Why the frozen bands make this matter more

The 2027 pension change lands while the main inheritance tax thresholds are frozen. The nil-rate band, the residence nil-rate band and the £2,000,000 taper threshold are fixed until the end of the 2030-31 tax year (5 April 2031), a freeze extended by a further year at Budget 2025 (26 November 2025) (gov.uk, as at June 2026, subject to change). As asset and pension values rise against static thresholds, more estates may be drawn into inheritance tax over time.

Points people commonly consider

There is no single response that suits everyone, and the reform is still being finalised, so many people choose to wait for the final rules before acting. That said, several themes come up when people review their position ahead of April 2027. Each depends heavily on individual circumstances and often benefits from qualified input.

• Reviewing the whole estate together. Adding a pension to the picture can change how close an estate sits to the thresholds. Looking at pensions, property and other assets as a whole tends to give a clearer view.
• Spending and drawdown patterns. Some people reconsider which assets they draw on in retirement, though this is a personal and tax-sensitive decision best discussed with an FCA-authorised adviser.
• The spousal exemption. Because transfers to a spouse or civil partner are generally exempt, the order and structure of who inherits can matter.
• Lifetime gifting rules. Existing exemptions, such as the £3,000 annual exemption, still apply (gov.uk/inheritance-tax/gifts, as at June 2026, subject to change), and some people revisit these alongside the change.
• Taking advice. Pension and tax decisions interact in complex ways. One option some consider is discussing their position with a solicitor, a STEP practitioner, an accountant, or an FCA-authorised financial adviser.

For broader context on using allowances and reliefs, our guide on how to reduce Inheritance Tax legally and our wider estate planning guide may help.

Scotland and Northern Ireland

Inheritance tax is a UK-wide tax, so the 2027 pension change is expected to apply across England, Wales, Scotland and Northern Ireland in the same way. What differs between the nations is the surrounding law of succession and administering an estate. Scotland uses confirmation rather than a grant of probate and has its own succession rules, including legal rights for a spouse and children. Northern Ireland has a separate but broadly similar system to England and Wales. Where an estate touches more than one jurisdiction, it can be worth taking advice in each.

Frequently asked questions