Inheritance Tax on Pensions: The 2027 Change

Are pensions subject to inheritance tax now?

Generally not, under the rules in force for now. Most defined contribution pension pots and many death benefits fall outside the estate because scheme administrators usually hold them at discretion, so they are not treated as part of the deceased's estate for inheritance tax (gov.uk, inheriting a private pension, as at July 2026, subject to change). That position is what the planned 2027 reform is designed to change.

What changes from April 2027?

From 6 April 2027, the government plans to bring most unused pension funds and death benefits within the value of a person's estate for inheritance tax, with personal representatives made liable to report and pay any tax due (gov.uk, technical note, as at July 2026, subject to change). Some benefits, such as death in service benefits from a registered scheme, are set to be excluded.

Point	Planned position from 6 April 2027
What comes into scope	Most unused pension funds and death benefits, added to the estate
Who reports and pays	The personal representatives of the estate
A key exclusion	Death in service benefits from a registered pension scheme
Spouse or civil partner	Transfers between them are generally exempt

Point

Planned position from 6 April 2027

What comes into scope

Most unused pension funds and death benefits, added to the estate

Who reports and pays

The personal representatives of the estate

A key exclusion

Death in service benefits from a registered pension scheme

Spouse or civil partner

Transfers between them are generally exempt

Source: gov.uk, technical note on inheritance tax on pensions, as at July 2026 and subject to change. This is a planned reform and the detail may alter before it takes effect.

Income tax on an inherited pension

Inheritance tax is not the only tax that can touch a pension. Income tax can also apply to the person who inherits it, and the trigger is generally the age the pension holder had reached at death. Where the holder dies before age 75, most lump sum death benefits are usually paid free of income tax, subject to the lump sum and death benefit allowance. Where the holder dies at 75 or over, the benefits are generally taxed as income at the recipient's marginal rate (gov.uk, tax on pension death benefits, as at July 2026, subject to change).

These two taxes work separately. From April 2027 a pension could, depending on circumstances, face inheritance tax in the estate and income tax in the recipient's hands, which is one reason the reform has drawn attention. Because the interaction is technical, it is one area many people choose to discuss with an FCA-authorised adviser or a tax professional.

See our wider Inheritance Tax Explained guide for how the estate itself is taxed.

How the inheritance tax bands and rates apply

Where a pension is counted as part of an estate, it is taxed under the ordinary inheritance tax rules rather than any special pension rate. The nil-rate band is £325,000 per person, an extra residence nil-rate band of up to £175,000 may apply where a home passes to children or grandchildren, and 40% falls on value above the combined bands, or 36% where at least 10% of the net estate goes to charity (gov.uk, as at July 2026, subject to change). These figures are frozen to the end of the 2030-31 tax year (5 April 2031) (gov.uk, as at July 2026, subject to change).

Allowance or rate	Level (July 2026)
Nil-rate band (per person)	£325,000
Residence nil-rate band	Up to £175,000
Standard rate	40%
Reduced rate (10%+ to charity)	36%
Taper threshold	£2,000,000

Allowance or rate

Level (July 2026)

Nil-rate band (per person)

£325,000

Residence nil-rate band

Up to £175,000

Standard rate

40%

Reduced rate (10%+ to charity)

36%

Taper threshold

£2,000,000

Source: gov.uk/inheritance-tax, frozen to the end of the 2030-31 tax year (5 April 2031) per gov.uk, as at July 2026 and subject to change.

A worked example (illustration only). Suppose a man dies in, say, 2028 aged 78, leaving a house and savings worth £400,000 and an unused defined contribution pension of £300,000, so £700,000 in total, all to his adult children. Under the position planned from 6 April 2027, the unused pension would be added to his estate for inheritance tax (gov.uk, as at July 2026, subject to change). His estate could draw on the £325,000 nil-rate band and, as the home passes to children, up to £175,000 of residence nil-rate band, so up to £500,000 before tax, with 40% on the balance (gov.uk, as at July 2026, subject to change). Separately, because he died after 75, the children could also face income tax at their marginal rate on the pension they receive (gov.uk, as at July 2026, subject to change). Change the figures, the ages or the beneficiaries and the outcome changes, so this is general information, not a calculation for any real estate.

Planning points people often weigh

The planned reform has prompted many families to look again at how their pension and their wider estate fit together. There is no single right answer, and pensions are regulated products, so the sensible course for most people is educational reading followed by tailored advice. One option some consider is reviewing beneficiary nominations, the balance between drawing a pension and leaving other assets, and the use of the spouse exemption. It can be worth discussing with an FCA-authorised financial adviser, a solicitor or a STEP practitioner before acting.

Beneficiary nominations. Many people review who is nominated on each scheme, since this drives who receives the fund.

The spouse exemption. Transfers to a husband, wife or civil partner are generally exempt, so the interaction with a pension can matter.

Two taxes together. Inheritance tax and income tax can both apply, so weighing them together, with advice, is what many people do.

Because pensions are regulated products, this note is general and educational only. It is not a recommendation to buy, keep or change any pension, and any decision is best taken with an FCA-authorised adviser who can consider individual circumstances.

Pensions and inheritance tax in Scotland and Northern Ireland

Inheritance tax is a UK-wide tax, so the £325,000 nil-rate band, the residence nil-rate band and the 40% rate apply across Scotland, England, Wales and Northern Ireland alike, and the planned 2027 pension reform is UK-wide too (gov.uk, as at July 2026, subject to change). What differs is the surrounding succession law. Scotland has its own rules, including legal rights that can give a spouse and children a fixed share, and it uses confirmation rather than a grant of probate. Where an estate touches more than one UK nation, it can be worth taking advice in each. For the wider picture, see our estate planning guide.

Frequently asked questions

Do you pay inheritance tax on a pension?

Under the rules in force for now, most pension pots fall outside the estate and usually pass free of inheritance tax. The government plans to change this from 6 April 2027, bringing most unused pension funds and death benefits within the estate, with personal representatives liable to report and pay (gov.uk, as at July 2026, subject to change). It depends on the pension and the wider estate.

What is changing for pensions in April 2027?

From 6 April 2027, the government plans to bring most unused pension funds and death benefits into the value of the estate for inheritance tax, with some benefits such as death in service excluded (gov.uk, as at July 2026, subject to change). This is a planned reform, so the detail may change before it takes effect. Our note on the 2027 pension changes covers it more fully.

Is an inherited pension taxed as income too?

It can be. Income tax is separate from inheritance tax and generally depends on the age the holder reached. Where the holder died before 75, most lump sum death benefits are usually paid free of income tax, subject to the lump sum and death benefit allowance; where the holder died at 75 or over, benefits are generally taxed at the recipient's marginal rate (gov.uk, as at July 2026, subject to change).

Does the spouse exemption apply to pensions?

Transfers between spouses and civil partners are generally exempt from inheritance tax, and any unused nil-rate band can pass to the survivor (gov.uk, as at July 2026, subject to change). How this interacts with a pension under the planned 2027 rules can be technical, so it is one area many people choose to discuss with a qualified professional before making changes.

Who pays the inheritance tax on a pension from 2027?

Under the planned rules, the personal representatives of the estate become liable to report and pay any inheritance tax due on unused pension funds and death benefits from 6 April 2027 (gov.uk, as at July 2026, subject to change). The exact process is still being finalised, so it can be worth taking professional advice as the change approaches.

Should I take money out of my pension because of the 2027 change?

This is general information, not advice, and pensions are regulated products, so there is no one answer for everyone. Drawing a pension can trigger income tax and affects retirement funding, while leaving it invested has its own consequences, all depending on circumstances. Many people choose to discuss this with an FCA-authorised financial adviser who can weigh the whole picture before any decision.

About Fairchild Oldfield

The Fairchild Oldfield team brings together estate planning, tax, independent financial advice and client care, working with families across England and Wales.

Fairchild Oldfield are estate planning specialists and will writers, not a firm of solicitors. This article is general information based on practical experience, not legal, tax or financial advice.

Important: This article is general information only and is not legal, tax or financial advice. Reading it does not create a professional relationship. It is based on the law of England and Wales, and other UK jurisdictions may differ. Figures and rules are current as at July 2026 and are subject to change, and the April 2027 pension reform is a planned change whose detail may alter. Before acting, many people choose to seek advice from a suitably qualified professional, such as a solicitor, a STEP practitioner, an accountant, or an FCA-authorised financial adviser, who can consider your individual circumstances.

Inheritance Tax on Pensions