Will my pension be subject to inheritance tax from 2027?

For deaths on or after 6 April 2027, most unused defined contribution pension funds and death benefits will count as part of your estate for inheritance tax. Whether tax is actually due depends on your total estate: inheritance tax only applies above your tax-free bands, and anything left to a spouse, civil partner or charity remains exempt.

What is excluded from the new pension inheritance tax rules?

Death in service benefits paid from a registered pension scheme are excluded. The existing exemptions also continue: pensions passing to a surviving spouse or civil partner, or to charity, stay free of inheritance tax. The State Pension and pension income already being paid to you simply stop or follow their own scheme rules.

Who pays the inheritance tax on a pension after April 2027?

Your personal representatives (the people dealing with your estate) will be responsible for reporting and paying any inheritance tax due on unused pension funds, working with the pension scheme through an HMRC information-sharing process. Beneficiaries may separately owe income tax on what they draw if the person died at 75 or older.

Can inherited pension money be taxed twice from 2027?

Yes, in some cases. If death is at 75 or older, the pot can face 40% inheritance tax in the estate and then income tax at the beneficiary's rate on withdrawals. Stacked together the effective rate on that slice can pass 60%. Spouses and civil partners are exempt from the inheritance tax layer.

Pensions & Tax

Pensions and Inheritance Tax From April 2027

By Sam Parkinson · Last updated: July 2026 · 6 min read

For years, a pension has been one of the best places to leave money when you die, because it usually sat outside your estate for inheritance tax. That ends soon. For deaths on or after 6 April 2027, most unused pension pots and death benefits will count as part of your estate. The rules are now set in law, HMRC has explained how they'll work, and families with decent pensions plus a house have until April 2027 to get organised.

What's actually changing

Today, if you die with money still in a defined contribution pension, it normally passes to your beneficiaries without inheritance tax, whatever the size of your estate. From 6 April 2027, unused pension funds and most pension death benefits will be added to the value of your estate and taxed like everything else you own (source: GOV.UK policy paper and HMRC technical note, May 2026; legislated in the Finance Act).

Inheritance tax is charged at 40% on the part of an estate above the tax-free bands: the £325,000 nil-rate band, plus up to £175,000 of residence nil-rate band if your home goes to children or grandchildren. A couple can often pass on up to £1 million between them before any tax. The change doesn't touch those bands. What it does is push pension money inside them, so estates that were comfortably under the line can now be over it.

What stays out of the net

Three big exemptions survive. Anything passing to your spouse or civil partner remains free of inheritance tax, as does anything left to charity. And death in service benefits paid from a registered pension scheme are excluded from the new rules entirely. Pension income already being paid to you (an annuity with no guarantee left, or the State Pension) simply stops, so there's nothing to tax.

Who this actually affects

Not most estates, at least not immediately. Inheritance tax still only bites above the bands, and spouse-to-spouse inheritance stays exempt. The people most exposed are:

Anyone leaving a pension to children or other non-exempt beneficiaries where the pension plus house plus savings clears the tax-free bands.
Single people and surviving partners, who have no spouse exemption to lean on and often only one set of bands.
People who deliberately preserved their pension as an inheritance vehicle, spending ISAs and other savings first. That strategy made sense under the old rules and may now be exactly backwards.

The double tax problem after 75

The age-75 income tax rule from our pension death benefits guide carries on unchanged: die before 75 and beneficiaries can usually draw the money free of income tax (within limits); die at 75 or older and they pay income tax at their own rate on withdrawals. From April 2027 the inheritance tax layer stacks on top.

Estate over the bands, death at 76, a £100,000 pension left to a daughter who pays 40% tax. Inheritance tax takes £40,000. She then pays 40% income tax as she draws the remaining £60,000, another £24,000. Of the £100,000, she keeps £36,000, an effective rate of 64%.

That's a worst-case slice, not the fate of the whole estate, and beneficiaries paying basic rate lose less. But it shows why leaving a big pot untouched past 75 needs a rethink for estates above the bands.

Who deals with the tax

Your personal representatives (executors, usually family) will be responsible for reporting and paying any inheritance tax on unused pensions, not the pension scheme. HMRC has set out a five-stage information-sharing process between representatives and scheme administrators. In practice it means whoever handles your estate will need to find every pension you hold, so a simple list of your pots, kept with your will, will save them real pain. Our guide to finding lost pensions helps with the tidying up.

Sensible things to consider before April 2027

None of this is personal advice, but these are the levers people are weighing up with their advisers:

Revisit the spending order. If you've been living off other savings to preserve the pension, the tax logic that justified it is going. Drawing pension income and spending or gifting it may now beat hoarding the pot.
Check your expression of wishes. Leaving the pension to a spouse first (exempt) rather than straight to children can defer or avoid the charge. Forms filled in years ago may no longer match the best outcome.
Gifts made in good time. Regular gifts out of surplus income, and larger gifts that fall out of the estate after seven years, both remain outside inheritance tax. Money drawn from a pension (after income tax) can fund them. See our tax-free lump sum guide for how the 25% works.
Don't let the tax tail wag the dog. Emptying a pension fast to dodge a possible 40% charge can mean paying 40% income tax now instead, plus losing years of tax-free growth. For estates near the thresholds this is squarely where regulated advice earns its fee.

How big will your pot actually be?

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Common questions

Will my pension face inheritance tax from 2027?

For deaths on or after 6 April 2027, most unused pension funds count in your estate. Tax is only due if your total estate clears the tax-free bands, and anything passing to a spouse, civil partner or charity stays exempt.

What's excluded?

Death in service benefits from a registered scheme are excluded, and the spouse, civil partner and charity exemptions continue. Pension income that dies with you, like a no-guarantee annuity or the State Pension, was never part of the estate anyway.

Who pays the tax?

Your personal representatives report and pay any inheritance tax on the pension, working with the scheme through HMRC's information-sharing process. Beneficiaries may separately owe income tax on withdrawals if you die at 75 or older.

Can the money really be taxed twice?

Yes. Death at 75 or older can mean 40% inheritance tax on the pot and then income tax on what's drawn from the rest. For a 40% taxpayer beneficiary the combined effective rate on that slice is 64%. Spouses and civil partners escape the inheritance tax layer.

Sources

Inheritance tax on unused pension funds and death benefits from 6 April 2027: GOV.UK policy paper; HMRC technical note (May 2026) including the personal representative process and death in service exclusion.
Nil-rate band £325,000 and residence nil-rate band up to £175,000: GOV.UK.
Age-75 income tax treatment of inherited pensions: GOV.UK / HMRC Pensions Tax Manual. Figures correct as of July 2026.

Written by Sam Parkinson

Sam founded Pension Sprout to make UK pensions easier to understand. He researches every guide from primary sources like GOV.UK, the House of Commons Library and MoneyHelper, and writes in plain English. He is not a regulated financial adviser, and Pension Sprout gives information, not personal advice.

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This article is for general information only and does not constitute financial, tax or legal advice. Inheritance tax depends on your full estate and personal circumstances, and the April 2027 rules may be refined before they take effect; details are correct as of July 2026. For advice tailored to you, speak to a financial adviser regulated by the Financial Conduct Authority (FCA) or a suitably qualified tax adviser, or get free guidance from MoneyHelper.