Your Pension, Your Legacy · Guide 02
Pension Inheritance Tax Changes from April 2027
What is changing, what may be included and why your own circumstances matter.
A clear overview of the new rules, with links to the government’s explanations when you want more detail.
← Back to home01 · The change
More pension benefits will count in the estate’s tax calculation.
Most unused pension funds and pension death benefits will be brought into the value used to assess inheritance tax. Until the change, many discretionary pension death benefits can sit outside that calculation.
The reform has been legislated for in Finance Act 2026. HMRC is continuing to develop supporting guidance ahead of implementation.
The wider estate, who receives benefits and any available allowances, exemptions or reliefs all affect the result.
02 · What is included?
Start with the benefits, not just the pension’s name.
The change can cover money remaining in a defined contribution pension, including unused drawdown funds, and certain lump sums paid following a death. Particular benefits may be excluded, so a scheme’s actual rules matter.
A defined benefit pension does not work like an individual savings pot. It may provide different benefits after death, which need to be considered separately.
Does this mean my pension must be paid through my will?
No. Counting a pension benefit for inheritance tax does not, by itself, make it an asset distributed under your will. Pension payment decisions still follow the arrangement’s rules. Keep the tax calculation separate from the question of who receives benefits.
Ask your provider which death benefits your arrangement offers. Read HMRC’s scope explanation.
03 · Important exceptions
Not every pension benefit is treated alike.
Death-in-service benefits
Death-in-service benefits paid from a registered pension scheme are excluded from the change. This is a specific category; it does not mean every pension payment following the death of someone who was working is excluded.
Dependants’ scheme pensions
Dependants’ scheme pensions from defined benefit and collective money purchase arrangements are excluded. Do not extend this exception to every lump sum or other payment from the same scheme.
Benefits passing to a spouse, civil partner or charity
Existing inheritance tax exemptions for qualifying benefits passing to a spouse or civil partner, or a registered charity, are maintained. Conditions apply, including relevant residence rules. An unmarried partner is not automatically treated as a spouse or civil partner.
Source: GOV.UK: scope and exemptions.
04 · Understanding the tax
There is no single tax bill that applies to everyone.
Inheritance tax depends on the estate and the rules that apply to it. The standard rate is 40% on the taxable amount above the available threshold, rather than automatically on the whole pension.
The standard nil-rate band is £325,000. Additional or transferred allowances may be available, but their conditions matter. A home-related allowance is not available to every estate.
Lifetime gifts, debts, residence, exemptions and reliefs can change the calculation. A pension value on its own cannot tell you whether tax will be due.
Check the current rules: GOV.UK: thresholds, rates and allowances.
Someone receiving pension benefits may also need to consider income tax. Its treatment depends on factors including the benefit, the member’s age at death and the payment arrangements. An income-tax-free pension benefit is not necessarily exempt from inheritance tax.
Read about tax on inherited pensions ↗05 · Administration
Families and pension providers will need to share information.
Personal representatives — the people administering the estate — will be responsible for reporting and paying inheritance tax due under the new arrangements. Providers and beneficiaries also have roles in the process.
HMRC describes information-sharing requirements and ways to request that a pension scheme pays tax attributable to pension benefits. Some cases may involve withholding part of a benefit while the position is resolved; this is not an automatic hold on every pension.
Keeping a clear record of pension providers and policy references can help those dealing with an estate locate the relevant arrangements.
For the process and its conditions, see HMRC technical note 2. This page is an introduction, not an executor’s administration manual.
06 · Your next questions
Understand your position before making changes.
The headline alone is not enough to decide whether to withdraw money, give it away or change a pension arrangement. Those choices can affect retirement income, other taxes and the options available to your family.
A useful preparation list:
- Which pension arrangements do I have, and what type is each one?
- What benefits could be paid after my death?
- Who have I nominated, and what do the scheme’s rules say?
- How do my pensions fit alongside my home, savings and other assets?
- Which questions need financial, tax or legal advice?
Sources and further reading
This overview draws on the official sources linked beside the relevant explanations. For fuller technical detail, use:
- HMRC: Technical note on inheritance tax and pensions
- HMRC: Technical note 2 and implementation updates
- GOV.UK: Unused pension funds and death benefits
Sources checked 30 October 2026. This date records source checking, not approval of the page. Supporting guidance may develop before April 2027.
Sponsored by Wealth Lab Financial Services LLP.
General educational information, not personal financial, tax or legal advice. Tax treatment depends on individual circumstances and rules may change. Seek appropriately qualified advice about your own situation.