Pensions and inheritance tax: April 2027 changes¶

For deaths on or after 6 April 2027 unused defined-contribution pension funds and most pension lump-sum death benefits are brought within the scope of inheritance tax. The change was announced in the Autumn Budget on 30 October 2024 and enacted by the Finance (No. 2) Act 2025; HMRC published the consultation response and detailed mechanics in July 2025. It is the largest change to the IHT treatment of pensions since the introduction of pension flexibility in 2015. [source: gov-uk/inheritance-tax-unused-pension-funds-2026-05-02.html]

This guide is for two audiences. First: people whose retirement plans assumed pension wealth would pass to children or other non-spouse beneficiaries free of IHT — that assumption needs revisiting. Second: anyone who is or may be an executor for an estate that includes pension wealth — the responsibility for reporting and paying any IHT due falls on the personal representative, not on the pension provider.

If you can only do one thing today: contact each pension provider and ask for a copy of the current expression of wishes form. Check that the named beneficiaries reflect current circumstances. With the April 2027 change approaching, who is nominated matters more than it did under the old rules — particularly because nominations to a spouse or civil partner attract the spousal exemption that removes the IHT charge entirely.

How pensions are treated now (deaths before 6 April 2027)¶

For deaths up to and including 5 April 2027, most unused defined-contribution pension savings sit outside the estate for IHT purposes. The mechanism: the pension scheme administrator holds discretion over who receives the death benefits. The discretion is real even though it is almost always exercised in line with the member's expression of wishes. Because the funds are at the discretion of the trustees rather than the member, they are not part of the member's "estate" as defined for IHT and the IHT charge does not bite.

The income-tax treatment depends on the age at death:

Death before age 75: beneficiaries receive the funds entirely tax-free. No IHT, no income tax on withdrawals.
Death at or after age 75: beneficiaries pay income tax on withdrawals at their marginal rate. Still no IHT.

This combination has made defined-contribution pensions one of the most tax-efficient ways to pass wealth to non-spouse beneficiaries — particularly for people who could afford to leave the pension intact and draw on other assets in retirement.

Defined-benefit pensions work differently. They typically pay an ongoing survivor's pension to a spouse or dependant rather than a pot of capital. Survivor pensions from DB schemes have always sat outside IHT and continue to do so under the new rules.

What changes from 6 April 2027¶

The core change is short to state: from 6 April 2027 the value of unused defined-contribution pension funds is added to the estate for the IHT calculation under the new rules. If the combined estate (pension wealth plus everything else) exceeds the IHT threshold, IHT at 40% applies to the excess.

What is in scope:

Unused funds in defined-contribution workplace pensions, SIPPs, and personal pensions.
Lump-sum death benefits from most defined-contribution schemes.
Certain defined-benefit lump-sum death benefits — pension protection lump sums and some categories paid after the member has left employment.

What stays out of scope (the exemptions matter — most estates will fall within at least one):

Anything passing to a surviving spouse or civil partner — the standard spousal exemption removes the IHT charge entirely. An estate that leaves the pension to the spouse pays no IHT on the pension, regardless of value.
Anything passing to a registered charity — charity exemption.
Death-in-service lump sums from registered pension schemes (typically a multiple of salary, paid when the member dies in employment).
Ongoing dependants' scheme pensions from defined-benefit schemes — the income paid to a surviving spouse, civil partner, or dependant is not subject to IHT.
State Pension — stops on death; not an asset that passes.
Pre-purchased annuity continuation payments under guarantee periods or value-protected annuities.

[source: gov-uk/inheritance-tax-unused-pension-funds-2026-05-02.html]

What stays the same¶

The IHT framework around the change is unchanged:

Nil-rate band of £325,000 per individual (frozen until at least April 2030 under current policy). See nil-rate band.
Residence nil-rate band of up to £175,000 where a qualifying main home passes to direct descendants. See residence nil-rate band.
Transferable allowances between spouses and civil partners — unused nil-rate and residence nil-rate bands transfer on the second death, giving a couple up to £1 million combined where the conditions are met.
The 40% headline rate (or 36% where at least 10% of the net estate is left to charity).
The 7-year rule on lifetime gifts (gifts made more than 7 years before death fall out of the estate).

The pension change is therefore best understood as removing a specific exception that applied to one asset class, not as a redesign of IHT itself.

Who is responsible for the IHT¶

A significant practical change: under the new rules, the personal representative (the executor or administrator of the estate) is responsible for reporting the pension assets to HMRC and arranging payment of any IHT due. The pension scheme plays a supporting role but does not bear the primary liability. This was the central change made between the original Budget proposal in October 2024 (which would have placed liability on scheme administrators) and the version enacted after consultation in July 2025. [source: gov-uk/inheritance-tax-unused-pension-funds-2026-05-02.html]

What this means for the executor in practice:

Identify all pension arrangements the deceased held — workplace pensions (often more than one, from successive employers), SIPPs, personal pensions, any annuities still in a guarantee period.
Obtain a date-of-death valuation from each scheme. The valuation is provided by the scheme administrator on request.
Include the pension values on the IHT400 return.
Calculate the IHT on the combined estate and arrange payment to HMRC.

This is more work than the previous regime (under which pension assets were not reported on the IHT return at all) and requires the executor to know about every pension the deceased held. A current list of pension providers and scheme references in the estate planning checklist becomes materially more useful under the new rules — without it, the executor may miss a small workplace pension from years ago and either delay the estate or under-report.

The withholding mechanism¶

To avoid the alternative scenario in which a scheme pays out in full and then has to reclaim from beneficiaries who have already spent the money, the new rules introduce a withholding mechanism. Where the personal representative reasonably expects IHT to be due on pension assets, they can direct the scheme administrator to withhold up to 50% of the death benefits for up to 15 months from the end of the month in which the member died. The scheme then pays the IHT directly to HMRC from the withheld amount and releases the balance to the beneficiaries. [source: gov-uk/inheritance-tax-unused-pension-funds-2026-05-02.html]

The 50% / 15-month combination is intended to give the executor enough time to assemble the IHT return without freezing the pension entirely under the new regime. If the IHT due turns out to be less than 50% of the pension, the surplus is paid to the beneficiaries; if more, the executor needs to fund the balance from other estate assets.

HMRC is expected to publish further detail on the withholding mechanism in its Trusts and Estates Newsletter and in scheme guidance before the rules take effect. The detailed wording is in the secondary legislation that sits under the Finance (No. 2) Act 2025.

The double-taxation issue for deaths after age 75¶

The income-tax treatment of inherited pensions is unchanged by the IHT reform. For deaths at or after age 75, beneficiaries continue to pay income tax on withdrawals at their marginal rate. The interaction with the new IHT charge produces a combined effective tax rate that is high:

Worked example — DC pension of £200,000 in an estate that is otherwise above the IHT threshold, illustrating the combined IHT and income-tax effect:

Step	Amount
Pension pot at date of death	£200,000
IHT at 40%	£80,000
Remaining pot transferred to beneficiary	£120,000
Income tax for a 40% beneficiary on full withdrawal	£48,000
Net to beneficiary	£72,000
Effective combined rate	64%
[source: gov-uk/inheritance-tax-unused-pension-funds-2026-05-02.html]

For deaths before age 75 the income-tax limb does not apply, so the combined rate under the new rules is 40% (the IHT alone). The age-75 cliff was already significant under the old rules (it was the threshold for the income-tax charge); the new IHT rules sharpen the effect for non-spouse beneficiaries.

The government has acknowledged the double-taxation overlap but as of 2026 has not announced a mechanism to prevent it. People close to age 75 with substantial DC pensions and non-spouse beneficiaries may want to take advice on whether to draw down before death (which converts pension to taxed income now, but removes the funds from the IHT charge later) or to use the spousal exemption to defer the issue to the second death.

Government estimates of impact¶

From the July 2025 consultation response: [source: gov-uk/inheritance-tax-unused-pension-funds-2026-05-02.html]

Approximately 213,000 estates are expected to include pension wealth in the 2027/28 tax year.
Approximately 10,500 estates are expected to face an IHT charge under the new rules where they would not have under the old rules.
Approximately 38,500 estates in total are expected to pay more IHT than they would have under the old rules (the larger figure includes estates already paying IHT whose liability increases).
The average increase in IHT liability where pensions are caught is estimated at around £34,000.
Projected revenue to HM Treasury: £640 million in 2027/28, rising to around £1.46 billion per year by 2029/30.

The figures are estimates and may be revised as HMRC publishes outturn data after the rules take effect.

Impact by pension type¶

Pension type	Treatment from 6 April 2027
Defined contribution workplace pension	Unused fund in scope for IHT
SIPP (self-invested personal pension)	Same as DC workplace
Personal pension (DC)	Same as DC workplace
DB workplace — survivor pension	Outside IHT (unchanged)
DB workplace — lump-sum death benefit	May be in scope; depends on type
Death-in-service lump sum (registered scheme)	Outside IHT (unchanged)
Pre-purchased annuity (no guarantee period)	Stops on death; nothing to tax
Pre-purchased annuity (guarantee or value protection)	Continuation payments outside IHT (unchanged)
State Pension	Stops on death; nothing to tax

[source: gov-uk/inheritance-tax-unused-pension-funds-2026-05-02.html]

What to do now¶

For the member (the person whose pension is at issue):

Review the expression of wishes form with each pension provider. Confirm the named beneficiaries reflect current circumstances. A nomination to a spouse or civil partner attracts the spousal exemption and removes the IHT charge entirely.
Consider taking financial advice if the estate (including pension wealth) is likely to exceed the IHT thresholds. Options that may be available depending on circumstances: lifetime gifts (subject to the 7-year rule), drawing down the pension as income during retirement, purchasing an annuity, or restructuring beneficiary nominations.
Keep an up-to-date list of all pension arrangements in the estate planning checklist. The executor will need it.

For the executor (or future executor):

Build awareness that pension assets now sit on the IHT400 return. The previous habit of treating pensions as "outside the estate, ignore for IHT" no longer holds for deaths from 6 April 2027 under the new rules.
Watch for the HMRC guidance on the withholding mechanism, expected before the rules take effect.
Use the withholding option early where the IHT position is uncertain — it is the protection against having to chase beneficiaries for the IHT later.

Jurisdictional position¶

Inheritance tax is a reserved matter under the UK constitutional settlement; it is set by the Westminster parliament and applies uniformly across England, Wales, Scotland, and Northern Ireland. The April 2027 change therefore takes effect identically in all four nations.

The administration of estates does differ by jurisdiction — Scotland uses confirmation rather than probate, governed by the Trusts and Succession (Scotland) Act 2024 among others — and the procedural mechanics of including pension wealth on the equivalent return follow the local process. The substantive IHT calculation is the same wherever the death occurs.

What this guide doesn't cover¶

The mechanics of accessing a deceased person's pension under the current rules — see Pensions after a death.
The general framework of inheritance tax (thresholds, exemptions, the IHT400 return, the residence nil-rate band, transferable allowances) — see Inheritance tax for the detail.
Specific financial advice on pension drawdown, annuity purchase, or estate planning — outside the scope of a wiki; speak to a regulated financial adviser.
Lifetime gifting strategies in detail — outside the scope of this guide; covered in part by inheritance tax and in part by specialist advice.

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Last verified: 2 May 2026 against gov.uk inheritance tax on unused pension funds and death benefits.