Sunny Bharj
Independent Financial Adviser
Tony Springer
Independent Financial Adviser
From 6 April 2027 the money left in your pension when you die counts as part of your estate for inheritance tax. Until then it usually does not.
For most of the last decade a pension has been the most tax-efficient thing to leave behind. Money in a discretionary scheme sat outside the estate, so it passed without a 40% charge, and plenty of people were advised to spend other savings first and leave the pension alone.
That reverses for deaths on or after 6 April 2027. The rule is already law. It does not change what your pension is worth or what you can do with it while you are alive, and it changes the order you might want to spend things in.
Finance Act 2026 and HMRC guidance, checked 23 September 2026. 2026/27 thresholds. Rates and thresholds change at Budgets.
Unused money in a defined contribution pension, and lump sum death benefits from a defined benefit scheme, are treated as part of your estate. It applies whether or not the scheme trustees have discretion over who receives the money, which is what removes the split that existed before: discretionary schemes were outside inheritance tax and a handful of public sector schemes were already inside it.
HMRC expects around 10,500 estates a year to face inheritance tax that would not have done, and around 38,500 to pay more than they would have, by an average of about £34,000.
Whether a particular scheme or benefit falls inside or outside these rules depends on how it is written. Check what yours says.
The executors of your estate are liable for the tax on the pension. The pension scheme is not. An earlier proposal put the job on scheme administrators and it was dropped after consultation.
A scheme must provide the value of the pension money within 28 days of a valid request, and the request can be made before the grant of representation.
They are jointly liable with the executors, and solely liable for any pension that comes to light after the executors have been given clearance.
Executors can require a scheme to hold back half of a beneficiary's death benefit for up to 15 months after the end of the month of death. A beneficiary or executor can also direct the scheme to pay the tax straight to HMRC, for amounts of £1,000 or more.
The executors of your estate are liable for the tax on the pension. The scheme is not, and it will not pay it unless it is directed to.
If you die at 75 or over, whoever inherits your pension pays income tax at their own marginal rate on what they draw from it. That rule is not changing. From April 2027 the same money can carry inheritance tax in your estate first.
Below 75 the income tax charge does not usually arise, so the age you die at changes the answer a great deal. Neither charge applies to money left to a spouse or civil partner.
It is law. The Finance Act 2026 inserted the rule into the Inheritance Tax Act 1984 and it applies to deaths on or after 6 April 2027.
That is right for deaths before 6 April 2027 and wrong after it. Some consumer guidance has not caught up with the change yet, which is worth knowing if you are reading around the subject.
No. Anything that passes to a husband, wife or civil partner is exempt from inheritance tax, and the change does not alter that.
No. Benefits payable because you died in employment are specifically excluded.
Not on the strength of the rule alone. Money drawn from a pension is taxed as income when it comes out, it then sits in your estate where it can be taxed again, and it is no longer growing inside a pension. Whether drawing more makes sense depends on your income, the size of your estate and how long the money has to last.
Then adding the pension may still leave it under, in which case nothing changes for you. The thresholds are £325,000 each, plus up to £175,000 each where a home passes to direct descendants, and both are transferable between spouses.
Tax treatment depends on your individual circumstances and on current rules, both of which can change. The Financial Conduct Authority does not regulate tax advice, trusts or estate planning.
Not for deaths before 6 April 2027. From that date, unused pension money counts as part of your estate.
Read the answer →Your executors are liable. Beneficiaries are jointly liable with them, and there are two ways to settle the bill out of the pension itself.
Read the answer →No. Benefits paid because you died while employed are excluded from the April 2027 pension rules.
Read the answer →The form telling your pension scheme who you would like your pension to go to. Schemes treat it as a request they consider.
Read the answer →Independent Financial Adviser
Independent Financial Adviser
A first conversation of about twenty minutes, at no cost to you. Tell us what is on your mind: a pension you have lost track of, a fixed rate ending, a will you keep meaning to write.