From 6 April 2027, most unused pension funds and pension death benefits will be brought within the value of your estate for inheritance tax. Pensions have generally sat outside the estate until now, so for some families this is one of the more significant inheritance tax changes in years.
The measure was announced at the Autumn Budget 2024 and the main inheritance tax provisions were enacted in the Finance Act 2026, which received Royal Assent on 18 March 2026, applying to deaths on or after 6 April 2027 (gov.uk technical note, as at August 2026, subject to change). This guide explains what is changing, who it tends to affect, how the tax is reported, and the general options families look at ahead of the deadline. It covers England and Wales, and inheritance tax is a UK-wide tax, so the pension change applies across the UK.
What is changing in 2027?
Under the current rules, most pension pots that are not yet drawn can pass to beneficiaries outside the estate, which has led to pensions being used by some as a way to pass on wealth rather than to fund retirement. From 6 April 2027, that treatment ends for most defined contribution pensions. Unused funds that have not been drawn down or used to buy an annuity, together with many lump sum death benefits, will be added to the rest of the estate and measured against the available inheritance tax thresholds (gov.uk technical note, as at August 2026, subject to change). Any value above those thresholds is then taxed at the standard rate.
How inheritance tax works, and the frozen thresholds
Inheritance tax is charged on the part of an estate above the tax-free thresholds. Bringing pensions into the estate matters because those thresholds are frozen, so more of a combined estate-and-pension value can fall into tax over time. The main figures are set out below.
| Allowance or rate | Level (as at August 2026) |
|---|---|
| Nil-rate band | £325,000 |
| Residence nil-rate band | Up to £175,000 (where a home passes to direct descendants) |
| Standard inheritance tax rate | 40% |
| Reduced rate (10% or more of the net estate to charity) | 36% |
| Residence band taper | Withdrawn by £1 for every £2 the estate exceeds £2,000,000 |
Source: gov.uk/inheritance-tax, as at August 2026, subject to change. The nil-rate band, residence nil-rate band and £2,000,000 taper threshold are frozen until 5 April 2031, the end of the 2030 to 2031 tax year, a freeze extended by a further year at Budget 2025 on 26 November 2025 (gov.uk, Inheritance Tax thresholds, as at August 2026), subject to change.
A single person leaving a home to children or grandchildren may combine both bands for up to £500,000 before inheritance tax, and a married couple or civil partners may reach up to £1,000,000 by transferring unused allowances to the survivor (gov.uk, as at August 2026, subject to change). Once a pension is added to that picture, an estate that previously sat within the thresholds can move above them.
Who is affected by the pension change?
The change tends to matter most where a pension holder expects to leave a large part of their pension unused, and where the total of the estate plus the pension is likely to exceed the available thresholds. Transfers to a surviving spouse or civil partner remain exempt, so married couples and civil partners are often less exposed on the first death and more exposed on the second (gov.uk technical note, as at August 2026, subject to change). The table below gives a general sense of the direction of travel rather than advice for any one household.
| Situation | General effect from 6 April 2027 |
|---|---|
| Estate plus pension within the thresholds | Often no inheritance tax, though values and rules can change |
| Pension left to a surviving spouse or civil partner | Spouse and civil partner transfers remain exempt |
| Large unused pension left to children or others | More likely to be added to the estate and taxed above the thresholds |
| Death in service benefit from a registered scheme | Excluded from the new charge |
Source: gov.uk technical note, as at August 2026, subject to change.
The point many people miss: income tax can apply as well
Inheritance tax is not always the only charge on an inherited pension. Where the pension holder dies at or after age 75, beneficiaries generally pay income tax at their own marginal rate on what they take from the pension, and this sits alongside any inheritance tax that applies from 2027 (gov.uk technical note, as at August 2026, subject to change). Where death is before age 75, beneficiaries can often take funds free of income tax, within the relevant allowances. This interaction between inheritance tax and income tax is the reason the 2027 change can weigh more heavily on larger pensions passing to non-exempt beneficiaries, and it is a common reason people review the order in which they draw different assets.
What is not caught by the change
Not every pension payment falls within the new charge. The technical note confirms several exclusions and exemptions that continue after April 2027 (gov.uk technical note, as at August 2026, subject to change).
- Spouse and civil partner transfers. Pension funds and death benefits passing to a surviving spouse or civil partner remain exempt from inheritance tax.
- Charity. Amounts passing to a registered charity remain exempt, and charitable gifts still count towards the 10% test for the reduced 36% rate.
- Death in service. Benefits payable because a member was in employment at the time of death, paid from a registered pension scheme, are excluded from the new charge.
Key dates and how the tax is paid
From April 2027, personal representatives, meaning the executors or administrators of the estate, are responsible for reporting and paying inheritance tax due on unused pension funds and death benefits, and beneficiaries can become jointly liable once benefits are paid to them (gov.uk technical note, as at August 2026, subject to change). The timeline below sets out the main milestones.
| Date | What it marks |
|---|---|
| Autumn Budget 2024 | The change was announced |
| 18 March 2026 | Finance Act 2026 received Royal Assent, enacting the main provisions |
| 5 April 2027 | Last day the current pension treatment applies |
| 6 April 2027 | Most unused pension funds and death benefits fall within the estate for inheritance tax |
| 5 April 2031 | End of the current freeze on the nil-rate bands and taper threshold |
Sources: gov.uk technical note and gov.uk/inheritance-tax, as at August 2026, subject to change.
How families are preparing
There is no single right response, because the effect depends on the size of the pension, the rest of the estate, ages, health and family circumstances. That said, the general themes people raise with an adviser include the following. These are areas to explore, not recommendations, and the value of any pension and the tax treatment can fall as well as rise.
- Reviewing how much of the pension is likely to be used in retirement, and the order in which different assets might be drawn.
- Revisiting expression of wish forms and beneficiary nominations so pension providers hold current instructions.
- Considering the spouse and civil partner exemption, and how it interacts with planning on the second death.
- Looking at lifetime gifting rules, such as the annual exemption and normal expenditure out of surplus income, where appropriate.
- Reviewing the wider estate plan, including the will and a lasting power of attorney, so the documents and the numbers are considered together.
Because pensions, income tax and inheritance tax interact, and the mistakes can be costly, many people take advice from an FCA-authorised financial adviser or a suitably qualified tax professional before making changes. Our broader guide to inheritance tax sets out how the thresholds and reliefs fit together, and if you would like to talk through your position you can book a consultation.
Scotland and Northern Ireland
Inheritance tax is a UK-wide tax, so the 2027 pension change applies in Scotland and Northern Ireland as well as in England and Wales. What differs across the nations is the surrounding succession law. Scotland has its own rules, including legal rights that can give a spouse and children a fixed share of an estate, and it 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, it can be worth taking advice in each.
Frequently asked questions
When do the pension inheritance tax changes start?
They apply to deaths on or after 6 April 2027. From that date, most unused pension funds and pension death benefits are brought within the value of the estate for inheritance tax. The measure was announced at the Autumn Budget 2024 and enacted in the Finance Act 2026 (gov.uk technical note, as at August 2026, subject to change).
Will my pension be taxed twice from 2027?
It can be. Inheritance tax may apply to the pension as part of the estate, and where the pension holder dies at or after age 75, beneficiaries generally also pay income tax at their marginal rate on what they withdraw. Where death is before age 75, withdrawals can often be free of income tax within the allowances (gov.uk technical note, as at August 2026, subject to change).
Are pensions left to a spouse or civil partner still exempt?
Yes. Transfers of pension funds and death benefits to a surviving spouse or civil partner remain exempt from inheritance tax after April 2027, in line with the existing spouse and civil partner exemption (gov.uk technical note, as at August 2026, subject to change).
Are death in service benefits included in the new rules?
No. Benefits payable because a member was in employment at the time of death, paid from a registered pension scheme, are excluded from the new inheritance tax charge (gov.uk technical note, as at August 2026, subject to change).
Who reports and pays the inheritance tax on a pension?
From 6 April 2027, personal representatives, meaning the executors or administrators of the estate, are responsible for reporting and paying inheritance tax due on unused pension funds and death benefits. Beneficiaries can become jointly liable once benefits are paid to them (gov.uk technical note, as at August 2026, subject to change).
What are the inheritance tax thresholds the pension is measured against?
The nil-rate band is £325,000 and the residence nil-rate band is up to £175,000 where a home passes to direct descendants, with a standard rate of 40% and a reduced 36% rate where 10% or more of the net estate passes to charity. These thresholds are frozen until 5 April 2031 (gov.uk/inheritance-tax, as at August 2026, subject to change).