Pension Inheritance Tax Changes From April 2027 — What Families Need to Know Now

For decades, most unused pensions have sat outside the taxable estate, making them one of the most tax efficient ways to pass on wealth. That changes for deaths on or after 6 April 2027. The Finance Act 2026, which received Royal Assent on 18 March 2026, brings most unused pension funds and pension death benefits within the value of the estate for Inheritance Tax purposes. This guide sets out what is changing and what it means in practice.

What is actually changing

Under the current rules, most defined contribution pension funds that have not been drawn down, along with lump sum death benefits, generally pass to beneficiaries outside the estate and free of Inheritance Tax, regardless of whether the scheme trustees have discretion over who receives them. From 6 April 2027, that protection is largely removed. Unused pension funds and death benefits will be brought into the value of the deceased’s estate and could be taxed at 40% above the available nil-rate band, in the same way as other assets already are.

Who this applies to

The change applies where death occurs on or after 6 April 2027. If death happens before that date, current rules apply in full, even if the pension benefits are actually paid out afterwards. This gives families with significant pension wealth a defined window to review their planning before the rules take effect.

What stays exempt

Some of the existing exemptions carry through into the new regime. Pensions passing to a surviving spouse or civil partner remain exempt from Inheritance Tax, consistent with the general spousal exemption that already applies to other assets. Gifts to registered charities also remain exempt. Death-in-service lump sum benefits, such as a multiple of salary paid out by an employer’s scheme, are excluded from the change entirely, and that exclusion was widened during the legislation’s passage to cover non-active as well as active scheme members.

It is pensions left to children, grandchildren, or other non-spouse beneficiaries that are most exposed to the new charge.

Who has to report and pay

This is one of the more significant practical shifts. Responsibility for reporting and paying the Inheritance Tax on pension funds moves to the personal representatives administering the estate, rather than sitting with the pension scheme administrator as it might have done under earlier proposals. This means executors will need pension valuations from scheme administrators as part of the normal Inheritance Tax reporting process, alongside bank accounts, property, and other assets.

Interaction with income tax

Where a pension is now subject to Inheritance Tax and is later drawn down by a beneficiary, there are provisions intended to give a deduction so the Inheritance Tax already paid is taken into account when income tax is calculated on the later withdrawal, reducing the risk of the same money being taxed twice in full. The detailed mechanics of this are still being finalised through HMRC guidance expected through 2026 and into 2027.

What to do now

For anyone whose estate planning assumed pensions would sit outside their taxable estate, this is worth revisiting well before April 2027, particularly where pension wealth is significant relative to other assets, or where beneficiary nominations have not been reviewed for some time. For executors currently administering an estate where the death occurred before the change takes effect, the existing rules on pensions and death benefits still apply in full.

Our existing guide on pensions and death benefits and what goes through probate covers how the current rules work for estates being administered now. For the wider Inheritance Tax picture, our guide to the residence nil-rate band explains how property allowances interact with the standard nil-rate band that pension wealth will now sit alongside.

HMRC has published a full technical note on Inheritance Tax and pensions, and the general position on paying Inheritance Tax is set out on GOV.UK.