Last Updated: 26 August 2026 I Reading Time: Approx. 6 minutes
Summary
From 6 April 2027, most unused pension funds and certain pension death benefits will be brought into the scope of Inheritance Tax (IHT). This is a significant change to how pensions may be treated when someone dies.
The rules have already been legislated for in the Finance Act 2026, although further guidance and secondary legislation are still expected before the changes take effect.
This means that, for some people, the value of their pension could form part of their estate for Inheritance Tax purposes. If you have a substantial pension, it is worth understanding the changes now and considering whether your Will and wider estate planning still reflect your wishes.
Quick Answer
Yes, your pension may be subject to Inheritance Tax from 6 April 2027. From that date, most unused pension funds and certain pension death benefits will generally be included when calculating the value of an estate for IHT. However, not every pension benefit will be affected. For example, qualifying death-in-service benefits from registered pension schemes will remain outside the scope of IHT.
In this Article
- What is changing from April 2027?
- Why are pensions being brought into Inheritance Tax?
- Which pension benefits will be affected?
- How could this affect your estate?
- What can you do before April 2027?
- How the changes could affect beneficiaries
- How GLP Solicitors can help
- Frequently asked questions
Key Takeaways
- Most unused pension funds will be included in the estate for IHT purposes from 6 April 2027.
- The change applies to deaths on or after 6 April 2027.
- The standard IHT rate is currently 40% on the taxable part of an estate.
- The current nil-rate band is £325,000, while the residence nil-rate band can provide an additional £175,000 where the relevant conditions are met.
- Death-in-service benefits from registered pension schemes will remain outside the scope of IHT.
- Personal representatives will be responsible for reporting and paying IHT due on affected pension benefits.
- The change does not mean everyone with a pension will have to pay Inheritance Tax.
- Reviewing your Will and wider estate planning before April 2027 could help you understand the potential impact.
What is changing for pensions and Inheritance Tax in April 2027?
Pensions have traditionally been treated differently from many other assets when someone dies. In many cases, unused pension funds can pass to beneficiaries without forming part of the deceased person’s estate for Inheritance Tax purposes.
That is changing.
For deaths occurring on or after 6 April 2027, most unused pension funds and pension death benefits will be included in the value of the estate when working out whether Inheritance Tax is due.
The change was announced at the Autumn Budget 2024 and has since been legislated for through the Finance Act 2026. HMRC is continuing to develop guidance and supporting processes ahead of implementation.
Why are pensions being brought into Inheritance Tax?
The Government’s stated aim is to make the treatment of inherited pension wealth more consistent with other assets.
Under the previous rules, the way pension funds were structured could mean that unused pension wealth passed to beneficiaries outside the estate for IHT purposes. The Government said this could encourage pensions to be used for wealth transfer rather than primarily for retirement.
The new rules are intended to reduce this difference in treatment.
Which pension benefits will be affected?
The changes are broad and will cover most unused pension funds and pension death benefits.
They can apply to both defined contribution and defined benefit pension arrangements, subject to the specific rules and exemptions that apply to particular benefits.
However, there are important exceptions.
Death-in-service benefits
One important exception is death-in-service benefits payable from a registered pension scheme.
These will remain outside the scope of Inheritance Tax from 6 April 2027. This applies regardless of whether the scheme is discretionary or non-discretionary.
There are also specific pension benefits that remain outside the new rules, so it is important not to assume that every pension will automatically be subject to IHT.
How could this affect your estate?
The impact will depend on the size and make-up of your estate.
For the 2026/27 and 2027/28 tax years, the standard Inheritance Tax nil-rate band is £325,000. The residence nil-rate band is up to £175,000, subject to eligibility and tapering rules.
The standard rate of IHT is 40% on the taxable part of an estate.
From April 2027, an unused pension could increase the overall value of an estate and therefore potentially increase the amount on which IHT is calculated.
A simple example
Imagine someone dies with:
- A home and other assets worth £500,000
- An unused pension worth £300,000
Under the new rules, the pension may be included when calculating the value of the estate.
This does not automatically mean that £300,000 of tax will be due. The available allowances, exemptions and other factors would need to be considered before calculating any IHT liability.
The example simply shows why the value of your pension may become more important when looking at your estate as a whole.
What about leaving your pension to your spouse or civil partner?
Transfers to a spouse or civil partner can generally benefit from the spouse or civil partner exemption for Inheritance Tax purposes.
This means the position can be very different depending on who is receiving the pension benefits and the wider circumstances of the estate.
Unused nil-rate bands can also potentially be transferred between spouses or civil partners, subject to the relevant rules.
This is one reason why estate planning should look at your whole financial position, rather than considering your pension separately.
Could the new rules affect your beneficiaries?
Yes.
From April 2027, the value of affected pension benefits may form part of the calculation when determining whether IHT is due.
The Government has also confirmed that personal representatives will be responsible for reporting and paying IHT due on unused pension funds and death benefits. Pension beneficiaries may also have liability for IHT in certain circumstances.
This means that administering an estate involving pensions may become more complicated.
There will need to be communication between the personal representatives, pension scheme administrators, HMRC and beneficiaries.
What happens if there is not enough cash in the estate to pay the tax?
This is an important practical issue.
A pension may be a significant part of someone’s wealth, while the rest of their estate may consist largely of property or other assets that are not immediately available as cash.
The Government has therefore introduced processes that can allow personal representatives, in certain circumstances, to direct pension scheme administrators to withhold part of the pension benefits and pay IHT to HMRC.
HMRC is continuing to develop guidance and supporting tools ahead of April 2027.
Does this mean you should withdraw your pension before April 2027?
Not necessarily.
The introduction of these rules does not mean that withdrawing your pension is automatically the right thing to do.
Taking money from a pension can have other tax, financial and retirement-planning consequences. The right decision will depend on your circumstances, including your age, income, pension arrangements, other assets and plans for retirement.
It is therefore important not to make significant changes simply because of the upcoming IHT rules without taking appropriate financial and legal advice.
What should you do before April 2027?
If you have a significant pension or a larger estate, now is a good time to review your estate planning.
You may wish to:
- Check whether your Will still reflects your wishes.
- Review your pension arrangements and nominated beneficiaries.
- Look at the value of your pension alongside your other assets.
- Consider how your estate may be affected by the new IHT rules.
- Review any existing trusts or estate-planning arrangements.
- Consider whether your family knows where your pension arrangements are held.
- Take professional advice before making significant changes to your pension or estate.
The Government has confirmed that further guidance and supporting materials will be published before the April 2027 implementation date.
Why is it worth reviewing your Will?
A Will is an important part of estate planning, but it is only one part of the picture.
Your pension may have its own beneficiary nomination arrangements, and the interaction between your pension, Will, property and other assets can be important when planning how your wealth should pass to your family.
A review can help identify whether your existing arrangements still make sense in light of the changes coming in April 2027.
How GLP Solicitors can help
The changes to pensions and Inheritance Tax can make estate planning more important, particularly for people with larger estates or significant pension savings.
GLP Solicitors can help with matters including:
- Wills and estate planning
- Reviewing your existing Will
- Advising on Lasting Powers of Attorney
- Probate and estate administration
- Advising executors and personal representatives
- Reviewing how different assets may affect your estate
Where appropriate, legal advice can be considered alongside independent financial or tax advice to make sure the different aspects of your planning work together.
Frequently Asked Questions
Most unused pension funds and certain pension death benefits will be included in the estate for Inheritance Tax purposes from 6 April 2027. However, there are important exceptions. For example, qualifying death-in-service benefits from registered pension schemes will remain outside the scope of IHT. The rules can also depend on the type of pension benefit involved, so it is important to look at the specific arrangements rather than assume that every pension will be taxed in the same way.
The new rules apply to deaths occurring on or after 6 April 2027. If someone dies before 6 April 2027, the current rules apply even if pension benefits are paid to beneficiaries after that date.
The pension itself is not automatically taxed at 40%. Instead, affected pension benefits will generally be included when calculating the value of the estate for IHT purposes. The standard IHT rate is currently 40%, but allowances, exemptions and reliefs can affect the final amount due.
From April 2027, most unused pension funds and certain death benefits will be treated as part of the estate for IHT purposes. There are exceptions, including qualifying death-in-service benefits from registered pension schemes. The exact treatment depends on the type of pension and benefits involved.
There is no single way to avoid IHT that will apply to everyone. The tax treatment depends on your circumstances, the value and type of pension, who receives the benefits and the rest of your estate. Spouse or civil partner exemptions and other IHT allowances may be relevant. Professional advice can help you understand your position before making financial or estate-planning decisions.
Not without considering the wider consequences. Withdrawing or changing a pension can affect retirement income and other tax considerations. The new IHT rules are an important reason to review your estate planning, but they do not automatically mean that changing your pension is the right choice.
Not always. Pension benefits can have their own nomination and scheme rules, so your Will may not be the only document that determines who receives pension benefits. This is why it is useful to review your Will and pension beneficiary nominations together as part of wider estate planning.
A spouse or civil partner may benefit from the IHT spouse or civil partner exemption, depending on the circumstances. This means that the position can be different when pension benefits pass to a spouse or civil partner compared with another beneficiary. The wider estate and available allowances also need to be considered.
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