Inheritance Tax on Pensions from 2027: What It Means for You

Last updated: October 2026 · 9 min read

What's actually changing

Right now, most unused pension funds and death benefits sit outside your estate for inheritance tax (IHT) purposes — one of the reasons pensions have long been used as an effective way to pass on wealth, sometimes left untouched deliberately for that reason.

From 6 April 2027, that changes. Most unused pension funds and pension death benefits will be brought into the value of your estate when working out whether IHT is due. This applies to deaths on or after that date — if you die before 6 April 2027, today's rules still apply, even if the money is actually paid out to beneficiaries afterwards.

What stays exempt

The most important exemptions are unchanged:

• Pensions left to a spouse or civil partner remain completely free of inheritance tax — the same spousal exemption that applies to the rest of your estate.
• Pensions left to a registered UK charity also remain exempt.
• Dependant's pensions from a Defined Benefit (final salary) scheme — an ongoing income paid to a spouse, civil partner, unmarried partner, or child — are paid free of IHT regardless of the relationship, since it's an income stream rather than a lump sum transfer of wealth.

Who this actually affects

The government's own estimate is that of roughly 213,000 estates expected to include pension wealth in 2027/28, around 10,500 will face an inheritance tax charge as a result of this change — a small minority, but a meaningful one if you're in it.

One group facing a real, specific risk: unmarried partners. Unlike a spouse or civil partner, a DC pension pot left to an unmarried partner is not exempt — it will count towards the estate. This is a genuine gap worth knowing about if you're unmarried and your pension makes up a significant part of what you'd leave behind.

The double-tax risk worth understanding

Inheritance tax isn't the only tax that can apply. If you die at or after age 75, anyone who inherits and later draws down your pension also pays income tax on those withdrawals, at their own marginal rate. From April 2027, that income tax is charged on what's left after 40% inheritance tax — so the same money can be taxed twice.

The result is that, for estates that pay inheritance tax, a pension changes from the best thing to leave your children to the worst. Savings and ISAs are only ever taxed once, so they now pass on more.

Assumes the whole £1 falls within the taxable part of the estate (above the nil-rate bands) and is left to a child, not a spouse or civil partner. Income tax is worked out on the amount left after inheritance tax — for example, for a higher-rate taxpayer: £1 − 40p IHT = 60p, then 40% income tax = 36p kept.

If your estate is below the inheritance tax threshold, nothing changes — only income tax applies after 75, just as today. And the combined rate can be higher than shown if a large withdrawal pushes the person inheriting into a higher tax band, or into the £100,000–£125,140 band where the personal allowance is lost. Spreading withdrawals over several tax years can help.

Who's responsible for paying it

After considerable back-and-forth during consultation, the government confirmed that personal representatives (executors), not pension scheme administrators, are responsible for reporting and paying any inheritance tax due on pensions. In practice, this means:

• Executors will need to contact every pension provider the deceased held, to get valuations — even before probate is granted, under new information-sharing rules
• Where at least £1,000 of tax is due, the executor can ask the pension scheme to pay HMRC directly out of the pension funds, rather than the estate having to find the cash upfront
• This is a genuinely new administrative burden for executors, particularly if pension wealth wasn't well documented in advance

What's worth doing now

1. Make sure your pension nominations are up to date. If you're married or in a civil partnership and want the exemption to apply cleanly, your provider needs to know who your beneficiary is.
2. If you're unmarried with a partner, get proper advice. This is the group most exposed by the change, and options exist (such as certain trust structures) that are genuinely worth exploring with a professional.
3. Make sure whoever would be your executor knows what pensions exist. A pension nobody knows about is a pension that can't be valued, reported, or planned around.
4. Don't panic-spend your pension pot — but think about which pot you draw from first. Pensions are still tax-efficient for funding your own retirement, which remains their main purpose. But if your estate is likely to pay inheritance tax, it may now make more sense to use your pension for spending and keep savings and ISAs to pass on — the reverse of the usual advice until now.

The bottom line

This is a genuine, confirmed change to how pensions are treated on death — not a proposal that might not happen. For the majority of people, it won't create an inheritance tax bill that didn't already exist elsewhere in their estate. But if you're unmarried, have a substantial pension pot, or simply haven't looked at your estate planning in a while, April 2027 is a real deadline worth planning around properly rather than reacting to after the fact.

This guide is for general information only and is not financial advice. It reflects the Finance Act 2026 (Royal Assent 18 March 2026) and HMRC technical guidance published as of July 2026 — further detailed guidance is still being issued ahead of the April 2027 start date, so always check gov.uk for the latest position. Time to Retire is a software tool, not a financial adviser, and is not authorised or regulated by the FCA. For advice specific to your circumstances — especially if you are unmarried with a partner — consult a qualified independent financial adviser or solicitor.