Inheritance Tax on pensions from 6 April 2027: what changes
Published · 5 min read · Figures checked . UK rules and rates change, so check the official sources below before you act.
From 6 April 2027, most unused pension money left when someone dies will count towards their estate for Inheritance Tax. This guide explains what is included, who must report and pay, and how the timings work.
What is changing and from when
Until now, money left in a defined contribution pension (a pot built up from contributions and investment growth, rather than a promised income) has usually sat outside a person's estate for Inheritance Tax. That was because providers normally pay it out at their own discretion, and a discretionary payment is not treated as part of the estate. Finance Act 2026 changes this. HMRC's technical note says that from 6 April 2027, most unused pension funds and pension death benefits will be brought within the value of a deceased person's estate. The change applies to deaths on or after that date; deaths before it stay under the current rules. It only matters when a member dies with money left in the pension; contributions and withdrawals while alive are unaffected.
The government's policy paper says the change applies whether or not the scheme administrator or trustees have discretion over who receives the money. Some benefits are carved out. The policy paper excludes death in service benefits paid from a registered pension scheme, and dependants' scheme pensions from defined benefit arrangements (schemes that pay a set income based on salary and years of service) and from collective money purchase arrangements. The technical note lists further carve-outs, including certain qualifying joint-life annuities, but does not define the word 'most' in full, so the boundary may become clearer when final guidance is published.
Who must report and pay
The policy paper says personal representatives, the people who deal with the estate after a death, are liable for reporting and paying any Inheritance Tax due, rather than the pension scheme administrators. Personal representatives must also report the tax attributable to each pension scheme. Scheme administrators are being given new duties to support them. The technical note says an administrator must provide a valuation of the pension within 28 days of receiving a request, and may give an estimate, with the basis stated, if an exact figure is not yet possible. Tax is due as normal at the end of the sixth month after the date of death, so an estate that includes a pension has a clear deadline to plan around.
Because pension money can be paid out to several beneficiaries, the technical note describes two tools to help the estate. A withholding notice lets personal representatives ask a scheme to hold back up to 50% of a person's benefit entitlement under that scheme. It can last from the date of death until 15 months after the end of the month in which the person died, and it ends sooner if it is withdrawn or the tax and interest are paid. The Pensions Direct Payment Scheme is optional and lets the scheme pay the Inheritance Tax straight to HMRC; for a notice given by a beneficiary the amount must be at least £1,000, and the administrator must pay within 35 days of the notice. The note states that information-sharing rules and some templates are still being developed, so details may change.
What stays exempt and the Income Tax link
The policy paper says the existing principle of exemption for death benefits passing to a surviving spouse or civil partner is maintained, and so is the exemption for registered charities. GOV.UK's general Inheritance Tax page says an estate left to a spouse, civil partner or charity normally owes no tax, and that an unused threshold can be added to the surviving partner's. The technical note adds that benefits going to exempt beneficiaries are not deducted from the value of the pension when the tax is worked out, but they still need to be reported.
Inheritance Tax is separate from Income Tax on pension death benefits. GOV.UK says that if the member died before 75, most lump sums are tax-free if they are within the pension owner's lump sum and death benefit allowance, and that if the member was 75 or over, the provider usually deducts Income Tax on payments before they are made. The technical note says that where Inheritance Tax has been paid, the part of a benefit matching that tax does not count towards the beneficiary's taxable income, and that further guidance on people who pay the tax themselves is still to come. The detail is still being finalised.
A worked example
This example uses illustrative figures only and ignores other reliefs, the residence nil-rate band and any gifts. Suppose someone dies in 2028 leaving a house and savings worth £400,000 and an unused pension pot of £200,000, all to an adult child. Under the old rules the estate would be £400,000; less the £325,000 nil-rate band that leaves £75,000 taxable, and at 40% the tax is £30,000. Under the new rules the estate is £400,000 plus £200,000, which is £600,000; less £325,000 leaves £275,000 taxable, and at 40% the tax is £110,000. The difference is £80,000, which equals 40% of the £200,000 pension, because the estate was already above the threshold. A smaller estate could see a smaller effect or none, and if a home passed to a child the residence nil-rate band could change the sums.
Common mistakes and free help
- Assuming a pension is always outside the estate. For deaths on or after 6 April 2027 that will often no longer be true.
- Applying the new rules to deaths before 6 April 2027, which stay under the current rules.
- Treating the Income Tax position as the same for every payment; it depends on age at death and the type of payment.
Free help is available from MoneyHelper, Citizens Advice and the Pension Tracing Service, which can help find old pensions. HMRC has said further guidance, a calculator and a payment system will follow. This guide is general information, not advice, and the rules are still being finalised.
Check before you act
Rules, thresholds and HMRC guidance on this change are still being developed and may be updated. Please confirm the details on the official pages linked below before relying on any figure in this guide.
Sources
For information only. See our disclaimer and editorial standards. Spotted an error? Tell us.
