Your Pension, Your Legacy · Guide 01

Pensions and Inheritance Tax Explained

Pensions, your estate and inheritance tax — a clear place to start.

You do not need to know the terminology. This guide explains the main ideas, how they connect and where to go next.

01 · Your pension

What is a pension?

A pension helps provide money to live on in retirement. You may have a pension through work, one you arranged yourself, or several from different jobs.

Private pensions usually fall into two main types:

Defined contribution: a pot of money

You, your employer, or both pay money into a pension pot. It is usually invested, so its value can rise or fall. What you have available depends on contributions, investment performance, charges and how you take the money.

Defined benefit: an income based on scheme rules

This type generally provides an income based on factors such as your salary and how long you belonged to the scheme. You may hear it called a final salary or career average pension. It does not work like an individual investment pot.

The State Pension is separate from these private pensions. It is a government payment based on your National Insurance record; it is not a personal investment pot.

Not sure which type you have? Your pension statement or scheme administrator can help you identify it.

02 · Your estate

What does “your estate” mean?

In everyday terms, your estate is the money, property and possessions you leave when you die. It can include your share of a home, savings, investments and personal belongings.

Working out its value for tax is more detailed. Ownership, debts, some lifetime gifts and particular rules about assets can all matter. The inheritance tax calculation is not always the same as a simple list of what your will covers.

A simple example

Someone might leave a share of a home, a savings account and personal possessions. Those are starting points for understanding their estate. Whether inheritance tax is due depends on more than adding those items together.

Your pension also needs separate attention: its type, benefits and the rules applying at the time of death affect how it is treated.

03 · Inheritance tax

What is inheritance tax?

Inheritance tax, often shortened to IHT, is a tax that can apply to an estate after someone dies. Some gifts made during life can also be relevant.

Having an estate does not automatically mean inheritance tax is payable. Allowances, exemptions and reliefs can affect the calculation, alongside individual circumstances.

This introductory guide does not calculate a tax bill. For current thresholds and the conditions attached to them, use the GOV.UK inheritance tax guide.

Why pensions are part of the conversation

From 6 April 2027, most unused pension funds and pension death benefits will be included in the value of a person’s estate for inheritance tax purposes. This does not mean every pension is affected in the same way or that every estate will owe tax.

Read the government explanation ↗

Inheritance tax and income tax are different taxes. A pension payment to someone after your death can have its own income tax treatment. Do not assume that an explanation of one tax answers questions about the other.

04 · Your family and other beneficiaries

Who may receive your pension when you die?

It depends on the pension and its rules. There is no single answer that applies to every arrangement.

A defined contribution pension: money left in the pot may be paid to beneficiaries, depending on the scheme and how the benefits are arranged.
A defined benefit pension: the scheme may provide an income for an eligible spouse, civil partner or dependant, and sometimes a lump sum. Eligibility and amounts follow the scheme’s rules.
A pension already used to buy a retirement income: what continues after death depends on the product and any survivor benefits or guarantees chosen.

What is a nomination?

A nomination, sometimes called an expression of wish, tells a pension provider who you would like to receive benefits after your death. Depending on the scheme, it may guide a decision rather than bind the provider.

Do not assume that your will alone decides who receives every pension benefit. Ask each provider how its nomination process works and what it currently has recorded.

A useful question to ask your provider

“What benefits could be paid when I die, who could receive them, and how do I record or update my wishes?”

Scheme rules differ. The House of Commons Library explains inheriting pension rights.

05 · Useful words

A few terms, in plain English.

Open any definition when you need it.

Beneficiary

A person or organisation that receives money or another benefit, for example from a pension or an estate.

Pension death benefits

Money or an income that a pension arrangement may pay following a member’s death. What is available depends on its rules.

Executor or administrator

A person responsible for dealing with an estate. An executor is named in a will; an administrator is appointed where appropriate. Both may be described as personal representatives.

Allowance, exemption and relief

Different rules that can reduce the amount subject to tax or the tax payable. Each has its own conditions; the terms are not interchangeable.

Nomination or expression of wish

A record of who you would like to receive pension benefits after your death. Its effect depends on the arrangement’s rules.

Estate

The property, money and possessions left by someone who has died. Establishing its value for tax requires applying the relevant rules.

Keep going at your own pace

You have the starting points.

Next, explore the April 2027 change, or prepare questions for a conversation about your own circumstances.

What changes in April 2027 →Prepare your next questions →

Return to the homepage

Sources and further reading

Sources checked 30 October 2026. This records source checking, not approval of this page.

Sponsored by Wealth Lab Financial Services LLP.

This guide provides general educational information, not personal financial, tax or legal advice. Tax treatment depends on individual circumstances and rules may change. Speak to an appropriately qualified adviser about your own situation.