Pension Inheritance Tax Changes from April 2027 Explained (28 July 2026)

From 6 April 2027, the rules on how pensions are treated for Inheritance Tax (IHT) will change significantly.

 

Until now, many unused pension funds have usually been outside a person's estate for Inheritance Tax purposes. From April 2027, this will no longer be the case for most unused pension savings and certain pension death benefits.

 

The government introduced these reforms following the 2024 Autumn Budget to reduce the use of pensions as a way of passing wealth between generations without Inheritance Tax.

After consulting with pension providers and legal professionals, the government has confirmed how the new rules will operate before they come into force.

 

Importantly, most estates are still expected to remain below the Inheritance Tax threshold. Government estimates suggest only a minority of estates will become liable for additional tax because of these changes, although those with substantial pension wealth may be more significantly affected.

 

What Is Changing?

 

Unused pension funds will normally count towards your estate.

 

From 6 April 2027, most unused pension funds (including defined contribution and certain defined benefit death benefits) will be included when calculating the value of an estate for

Inheritance Tax.

 

In most cases, the previous distinction between discretionary and non-discretionary pension arrangements will no longer determine whether Inheritance Tax applies to pension death benefits.

 

Spouse and charity exemptions remain

 

The existing Inheritance Tax exemptions continue to apply.

 

In most cases, assets left to:

• a surviving spouse or civil partner; or
• a qualifying charity,

will remain exempt from Inheritance Tax under the normal rules.

 

Death-in-service benefits will remain outside Inheritance Tax

 

Following consultation, the government confirmed that death-in-service benefits paid through registered pension schemes will not form part of the deceased's estate for Inheritance Tax purposes.

 

This means many employer-provided life assurance benefits remain unaffected by the new rules.

 

Will Beneficiaries Still Pay Income Tax?

 

Possibly.

 

If someone dies before age 75, inherited pension benefits can often still be received free of Income Tax, provided the relevant conditions are met.

 

If they die aged 75 or over, beneficiaries will generally pay Income Tax at their own marginal rate when they withdraw inherited pension funds.

 

Where an estate also pays Inheritance Tax, both Inheritance Tax and Income Tax may apply, although they arise in different ways and at different stages. Government measures are intended to reduce direct double taxation where pension funds are used to settle Inheritance Tax liabilities, but the overall tax burden may still be significant in some cases.

 

Who Will Deal with the Inheritance Tax?

 

The government originally proposed making pension scheme administrators responsible for paying the Inheritance Tax due on pension funds.

 

However, after consultation, this approach was abandoned because administrators often do not have enough information about the rest of the deceased's estate.

 

Instead, responsibility will rest with the Personal Representatives (PRs) of the estate, usually the executors or administrators. They will calculate, report and arrange payment of any Inheritance Tax relating to pension assets.

 

How Can the Tax Be Paid?

 

The government has introduced several options to make payment easier.

 

Payment from the estate

 

The executors may pay the Inheritance Tax using estate funds. If the pension passes to different beneficiaries, the estate may later recover the appropriate share from those beneficiaries where necessary.

 

Payment by pension beneficiaries

 

Where appropriate, beneficiaries may contribute towards or reimburse the Inheritance Tax attributable to the pension benefits they receive, depending on the administration of the estate and pension scheme arrangements.

 

Payment directly from the pension

 

Personal Representatives can ask the pension scheme administrator to pay the Inheritance Tax directly to HMRC before releasing pension benefits.

 

This helps avoid executors having to find funds from elsewhere in the estate.

 

New Powers for Executors

 

To help administer estates, Personal Representatives will receive additional powers.

 

These include:

• directing pension providers to pay Inheritance Tax directly to HMRC;
• issuing a withholding notice allowing pension benefits to be temporarily retained while the final tax position is established;
• protection from liability where previously unknown pension arrangements are discovered after HMRC has already issued Inheritance Tax clearance, provided reasonable enquiries were made.

 

What Should You Do Now?

 

Although the new rules do not start until April 2027, it is sensible to review your estate planning if your pension forms a significant part of your wealth.

 

You may wish to consider:

• reviewing your Will;
• checking your pension nomination forms are up to date;
• understanding the potential impact on your beneficiaries;
• discussing your estate planning with a solicitor or financial adviser;
• considering whether your current retirement and inheritance plans remain appropriate.

 

The right approach will depend on your personal circumstances, and professional advice is often worthwhile where substantial pension savings are involved.

 

Practical Tips for Executors

 

If you expect to administer an estate after April 2027, it will help to:

• identify all pension providers as early as possible;
• gather information about pension values;
• understand both Inheritance Tax and any potential Income Tax payable by beneficiaries;
• allow sufficient time to deal with pension providers before the Inheritance Tax payment deadline.

 

Summary

 

• From 6 April 2027, most unused pension funds, including defined contribution pension savings and certain pension death benefits, will be included when calculating the value of your estate for Inheritance Tax.
• Benefits left to a spouse, civil partner or qualifying charity remain exempt under existing rules.
• Death-in-service benefits from registered pension schemes remain outside the scope of Inheritance Tax.
• Personal Representatives, rather than pension providers, will generally be responsible for reporting and paying the tax.
• New procedures have been introduced to allow pension providers to assist with payment where appropriate.
• Most estates are still expected to remain below the Inheritance Tax threshold, but those with substantial pension wealth may wish to review their estate planning before the new rules take effect.

 

About Hanieh Shadmani 

 

Hanieh Shadmani is a Solicitor in the Wills & Probate department at Duncan Lewis Solicitors, based at the firm’s head office in the City of London. With nine years of experience in the legal profession, Hanieh has developed extensive expertise in handling a broad range of complex probate matters, including both contentious and non-contentious Wills & Probate cases. She manages the day-to-day progression of matters with diligence and care, providing clear, practical advice tailored to each client’s circumstances. 

 

About Duncan Lewis Solicitors 

 

Duncan Lewis Solicitors provides expert legal advice on wills, estate planning and probate matters, helping individuals and families protect their assets and plan for the future with confidence. The firm’s experienced solicitors offer tailored guidance on drafting wills, inheritance tax planning, lasting powers of attorney and estate administration, ensuring each client’s wishes are clearly documented and legally protected. With a client-focused approach and extensive expertise in private client law, Duncan Lewis delivers practical, compassionate support to help clients safeguard their loved ones and achieve peace of mind.