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, most pensions sit outside it.
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, under a rule already in law. What you can do with your pension while you are alive is unchanged. The order in which you spend your pension and your other savings may need to change.
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. Before the change, 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. A scheme pays it only when 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. Money left to a spouse or civil partner is exempt from inheritance tax, but the income tax rules above apply to them in the same way as to anyone else.
The Budget on 28 October 2026 kept the cash ISA limit at £20,000, raised the tax on savings interest from April 2027 and cut the Business Asset Disposal Relief limit to £500,000. Pensions still come into inheritance tax on 6 April 2027.
Read more →Work out whether your estate will be over the bands with the pension in it. Nominations, gifts and life cover in trust are among the options.
Read more →Until 5 April 2031. The £325,000 and £175,000 bands and the £2 million taper point are all fixed until then.
Read more →For deaths before 6 April 2027, money left in most pensions passes outside your estate and carries no inheritance tax. For deaths on or after that date, unused pension funds and lump sum death benefits count as part of your estate. The full answer.
The personal representatives of your estate pay it, and they are normally your executors. The pension scheme does not pay it, although the tax can be settled out of the pension money in two specific ways. The full answer.
No. Benefits payable through a registered scheme because you died while employed are specifically excluded from the pension rules taking effect on 6 April 2027, from discretionary and non-discretionary schemes alike. The full answer.
It is the form that tells your pension scheme who you would like to receive your pension when you die. Most schemes treat it as a request they consider, and they are not bound by it. The full answer.
For deaths before 6 April 2027, money left in most pensions does not. For deaths on or after that date, unused pension funds and lump sum death benefits count as part of your estate. Death in service benefits are excluded, and anything passing to a spouse or civil partner is exempt. Are pensions subject to inheritance tax?
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.
It does for deaths before 6 April 2027. Some consumer guidance has not been updated for the change, so check the date on anything you read about it.
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.
From 6 April 2027 the money left in your pensions when you die counts as part of your estate for inheritance tax.
Enter your estate and your pensions to compare the inheritance tax on a death before 6 April 2027 with a death on or after it.
Work it out →Twenty statements about money that sort into four patterns, with a written report on the pattern your answers fit.
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