Pensions and Inheritance Tax: what changes in April 2027
The short answer: from 6 April 2027, unused pension pots and most pension death benefits will count towards your estate for Inheritance Tax, at 40% above your allowances. Pensions left to a spouse or civil partner stay tax-free, and death in service cover is excluded. For an estate of £600,000 with a £250,000 pension, the bill goes from £40,000 to £140,000.
What changes in April 2027
| Before 6 April 2027 | From 6 April 2027 | |
|---|---|---|
| Unused defined contribution pots | Usually outside the estate | Part of the estate |
| Lump sum death benefits | Usually outside the estate | Part of the estate |
| Left to a spouse or civil partner | Tax-free | Tax-free |
| Death in service benefits | Outside | Still outside |
| Dependants' pensions from final salary schemes | Outside | Still outside |
| Who reports and pays | – | Personal representatives |
An example
A widowed parent leaves a £600,000 estate, including the family home, to their children, with full transferable allowances of £1,000,000. That covers it. But a single person with one set of allowances, £500,000:
| Before April 2027 | From April 2027 | |
|---|---|---|
| Estate excluding pension | £600,000 | £600,000 |
| Unused pension | Not counted | £250,000 |
| Allowances (nil-rate and residence) | £500,000 | £500,000 |
| Inheritance Tax at 40% | £40,000 | £140,000 |
Adding the pension can also push an estate over £2,000,000, where the residence nil-rate band starts to taper away, raising the bill further.
Dying after 75: the double tax
If you die after 75, beneficiaries already pay Income Tax on money they draw from an inherited pension. From April 2027, Inheritance Tax comes first. Take a £100,000 pot fully taxable for Inheritance Tax, inherited by a child paying 40% Income Tax:
- Inheritance Tax at 40%: £40,000
- Income Tax at 40% on the remaining £60,000: £24,000
- Left for the child: £36,000, or 36% of the pot
Die before 75 and the beneficiary pays no Income Tax on it, though Inheritance Tax can still apply.
Which pensions are affected
| Type of pension or benefit | Counts for Inheritance Tax from April 2027? |
|---|---|
| Unused personal pension or SIPP pot | Yes |
| Unused workplace defined contribution pot | Yes |
| Drawdown funds not yet taken | Yes |
| Lump sum death benefits from most schemes | Yes |
| Guaranteed annuity payments still due after death | Usually yes |
| Dependant's pension from a final salary scheme | No |
| Death in service lump sum | No |
| Anything left to a spouse or civil partner | No tax, under the spouse exemption |
How the tax is paid
The estate's personal representatives are responsible for working out the tax, including on pensions. They will need details of every pension from the providers, which can take time. Inheritance Tax is normally due by the end of the sixth month after the death, with interest after that. Where the estate's other assets can't easily cover the bill, personal representatives or beneficiaries can ask the pension scheme to pay the tax on the pension directly. Keeping an up-to-date list of your pensions, with provider names and policy numbers, makes this much easier for your family.
A checklist before 2027
- Add up your estate including pensions, and check it against your allowances.
- Find any old workplace pensions. The government's pension tracing service can help.
- Update your expression of wishes with every scheme.
- Review your will, especially if you are unmarried.
- Think about how much income you need in retirement before drawing more to give away.
What people are considering
- Spending the pension first and leaving ISAs and other savings, which reverses the old advice.
- Gifts from surplus income: regular gifts out of income you don't need are free of Inheritance Tax straight away, if you keep records. See the 7-year rule for gifts.
- Taking the 25% tax-free lump sum and gifting it, which starts the 7-year clock.
- Updating your expression of wishes with the pension scheme, especially if a spouse should inherit.
- Life insurance written in trust to cover a bill.
Each has trade-offs, including running out of money in later life. Taking regulated advice is worth it if large sums are involved.
For couples
Between spouses and civil partners, everything passes tax-free and unused allowances transfer. See the Inheritance Tax threshold for couples. The pension change mainly matters on the second death, or for unmarried couples, who get no spouse exemption.
Also see defined benefit vs defined contribution pensions.
Related reading: the Autumn Budget 2026 explained.
Based on the legislation for deaths on or after 6 April 2027. This is general information, not tax or financial advice.
Common questions
Will my pension be subject to Inheritance Tax?
From 6 April 2027, most unused pension funds and death benefits count as part of your estate for Inheritance Tax. Before then, they are usually outside it.
Is a pension left to my husband, wife or civil partner taxed?
No. Anything left to a spouse or civil partner, including a pension, is free of Inheritance Tax. The tax only applies when the estate passes to others, such as children.
Is death in service cover included?
No. Death in service benefits from a registered pension scheme are excluded, as are dependants’ scheme pensions from defined benefit schemes.
Can a pension be taxed twice when you die?
Yes, if you die after 75. The pot can face 40% Inheritance Tax, then the person who inherits pays Income Tax on what they draw out. Together that can take well over half of it.
Who pays the Inheritance Tax on a pension?
The personal representatives of the estate report and pay it. They can ask the pension scheme to pay the tax directly from the pot in some cases.