Pensions and Inheritance Tax: April 2027 Changes

For deaths on or after 6 April 2027, most unused pension funds and pension death benefits will count towards the estate's value for inheritance tax. Inclusion does not automatically create a tax bill. Whether tax is payable depends on the estate, available allowances and exemptions.

The trigger is the date of death. Deaths before 6 April 2027 stay under the current rules, even if benefits are paid later.
Inclusion does not mean a bill. Thresholds, exemptions and allowances still apply.
The personal representatives deal with the tax. Pension schemes provide information and, in some cases, pay.

When do the pension inheritance tax changes start?
Will every inherited pension face inheritance tax?
Could including my pension reduce the allowance for my home?
Which pension benefits remain exempt or excluded?
Family situations
Does business relief apply to my pension?
Who reports and pays the tax?
For executors: deadlines and notices
What was announced at the 28 October 2026 Budget?
How can I find an old pension provider?
Key dates
Sources

When Do The Pension Inheritance Tax Changes Start?

Under the current rules, benefits from most discretionary pension schemes are generally outside the estate for inheritance tax. For deaths on or after 6 April 2027, most unused pension funds and pension death benefits will be brought into the value of the estate. The change is set out in Finance Act 2026, which received Royal Assent on 18 March 2026.

The new rules cover most pension pots that can or must be used to provide death benefits, and certain lump sum death benefits from defined benefit schemes. For overseas schemes, the treatment depends on the scheme's status, where it is established and the deceased's inheritance tax residence status.

Sources: HMRC technical note 1; Finance Act 2026, chapter 11 (legislation.gov.uk).

Will Every Inherited Pension Face Inheritance Tax?

No. Including pension benefits in an estate does not automatically mean tax is payable. The standard inheritance tax threshold is £325,000, and the standard rate is 40% on the value above the threshold available, not automatically on the whole pension. A pension has to be considered alongside everything else in the estate. Its value alone does not give you the tax bill.

An additional residence nil-rate band of up to £175,000 may apply when a qualifying home passes to direct descendants, such as children or grandchildren. Together with the standard £325,000 threshold, this can provide up to £500,000 of allowance for an individual estate, subject to the conditions. It is not automatic for every homeowner.

Sources: GOV.UK, Inheritance Tax; HMRC residence nil-rate band guidance.

Could Including My Pension Reduce The Allowance For My Home?

Yes, it can, if including pension benefits increases the estate value above the £2 million taper threshold. Including pension benefits can increase the estate value used when assessing inheritance tax, so for an estate near or above £2 million the residence nil-rate band taper may matter as well as the pension's inclusion itself.

For estates worth more than £2 million, the residence nil-rate band reduces by £1 for every £2 above that amount. It does not disappear immediately at £2 million.

Which Pension Benefits Remain Exempt Or Excluded?

Spouses and civil partners. Pension benefits passing to a spouse or civil partner generally remain exempt. The value is still reported as part of the total, with the exempt share identified.
Charities. Benefits passing to a charity qualifying for the inheritance tax exemption are generally exempt.
Qualifying death in service benefits. These are excluded where entitlement depends on employment or specified work immediately before death. Benefits that would also be payable without that employment or work do not qualify for this exclusion.
Dependants' scheme pensions. These can be excluded, subject to statutory conditions. Choosing this option instead of an available non-excluded benefit does not itself secure the exclusion. These pensions remain taxable as pension income.

Family Situations

Does the spouse exemption cover an unmarried partner? No. Living together does not, by itself, give a partner the exemption available to a legally recognised spouse or civil partner. That holds even where a couple have been together for many years.

Can a pension I inherited earlier count in my estate? It can. Remaining inherited pension benefits can be relevant to the beneficiary's own estate. If the beneficiary dies on or after 6 April 2027, remaining inherited benefits, such as those in a beneficiary drawdown account, may be counted alongside their own pensions. This can apply even where the original member died before the new rules began.

Does Business Relief Apply To My Pension?

No. Owning a business does not make the pension property brought into the estate under these rules eligible for business property relief or agricultural property relief. Pension property does not qualify for the statutory option to pay inheritance tax over ten annual instalments. A business owner's pension and business interests therefore need to be looked at separately when reliefs are considered.

Who Reports And Pays The Tax?

The personal representatives of the estate, meaning the executors or administrators, are responsible for reporting and paying any inheritance tax due on pension benefits, together with the rest of the estate. Tax is due at the end of the sixth month after death, and interest runs after that. Once a beneficiary becomes entitled to pension benefits, that beneficiary becomes liable alongside the personal representatives for the inheritance tax attributable to those pension benefits.

Pension scheme administrators are normally not liable for the tax. Their role is to provide information and, in some cases, to pay. Personal representatives also have a duty to take reasonable steps to identify the pensions a person held.

For Executors: Deadlines And Notices

The pension value, or an estimated value, must be supplied within the 28-day period beginning with receipt of a valid request. Information about potentially exempt beneficiary categories is due by the later of that deadline and the end of the 14-day period beginning when all beneficiaries are determined.

Withholding notice. A personal representative can ask a registered scheme to hold benefits back. While a valid notice applies, the scheme cannot make a payment that would take total benefits paid to a beneficiary above 50% of that beneficiary's entitlement. Exempt and excluded benefits are not restricted. A notice can run until 15 months after the end of the month of death, and can end earlier. HMRC says it is not intended for routine or precautionary use.
Payment notice. A personal representative or a beneficiary can require a registered scheme to pay tax and interest attributable to the deceased's pension benefits in that scheme direct to HMRC. The amount must be at least £1,000 including interest, and the scheme must hold enough remaining benefits to meet it. The scheme must pay within the 35-day period beginning with receipt of a valid notice, unless the notice is withdrawn or stops being valid before payment.

An administrator who fails to act on a valid withholding or payment notice can become jointly liable for the tax. Personal representatives remain responsible for reporting, and beneficiaries may share liability for tax attributable to their pension benefits.

Sources: Finance Act 2026 section 68; HMRC technical note 2; SI 2026/818.

What Was Announced At The 28 October 2026 Budget?

The government announced removal of the two-year tax rule for otherwise tax-free pension death benefits, effective for relevant payments from 28 October 2026. Legislation is to follow in Finance Bill 2026-27. HMRC has told administrators not to deduct tax solely because the two-year period has expired. This concerns income tax. Inheritance tax and income tax are separate, and the change does not make all inherited pensions tax-free.

The government also said it will legislate, subject to conditions, so that where there is no will or named executor a prospective personal representative can give a payment notice, and so that personal representatives can choose whether pension funds count when testing whether an estate has given enough to charity to qualify for the reduced 36% rate. These points are announcements, not yet law.

Sources: HMRC tax information note on removing the two-year rule; Newsletter 186.

Key Dates

18 March 2026: Finance Act 2026 receives Royal Assent
11 May 2026: HMRC publishes technical note 1
27 August 2026: HMRC publishes technical note 2
28 October 2026: Budget: announced removal of the two-year rule for payments from this date, legislation to follow
6 April 2027: New rules apply to deaths on or after this date
Spring 2027: HMRC expects to publish guidance and tools

How Can I Find An Old Pension Provider?

The government's Pension Tracing Service can help you find contact details for an old workplace or personal pension scheme. You need the name of the employer or provider. It does not confirm that a pension exists or its value; that has to come from the scheme.

Sources

General information only, not personal financial or tax advice.