From 6 April 2027, most unused pension funds and death benefits will be counted as part of the estate for inheritance tax. For married couples and civil partners, the immediate answer to the obvious question is reassuring: a pension left to your spouse or civil partner remains completely exempt from inheritance tax, because the ordinary spouse exemption applies to pensions just as it applies to the house, the savings and everything else. On the first death, nothing is usually payable.
But that is only half the story, and it is the half most coverage stops at. The exemption defers the tax rather than removing it. The surviving spouse's estate now holds two lifetimes of assets plus the inherited pension wealth, and the whole accumulation is assessed on the second death. Couples who were comfortably under the thresholds can find that pensions push the second estate over the £2,000,000 line where the residence nil-rate band starts to disappear. If you want your own numbers rather than the theory, our free pensions IHT 2027 estimator models both the first-death and second-death position in a couple of minutes. This guide covers England and Wales rules on allowances; the pension reform itself applies UK-wide.
What actually changes on 6 April 2027
Under current rules, most defined contribution pension funds sit outside the estate for inheritance tax, largely because scheme trustees typically have discretion over who receives death benefits. The Government's reform, set out in HMRC's policy paper on inheritance tax and pensions, ends that treatment. From 6 April 2027, unused pension funds and death benefits are included in the value of the estate.
The key features, as legislated:
- The change takes effect for deaths on or after 6 April 2027.
- Personal representatives (the executors or administrators) are legally responsible for reporting and paying any inheritance tax due on the pension element.
- Death in service benefits from registered pension schemes are excluded from the charge.
- Up to 50% of the pension amount can be withheld by the scheme for up to 15 months to help fund the inheritance tax liability.
- HMRC estimates around 10,500 estates become newly liable each year, and a further 38,500 pay more than they otherwise would, with an average increase of around £34,000.
Crucially, the reform changes what counts as being in the estate. It does not change the exemptions. Anything passing to a spouse or civil partner remains exempt under the long-standing spouse exemption, and that now expressly covers pension death benefits too. Whether the change catches you at all depends on who inherits and how large the combined estate is; our companion post on who is affected by the 2027 pension IHT change walks through that question step by step.
The first death: exempt, and usually untouched
For a married couple or civil partners where the pension passes to the survivor, the 2027 position on the first death looks almost identical to today. The pension is included in the estate on paper, but the spouse exemption takes it straight back out. No inheritance tax is due on it, whatever its size, for UK domiciled couples.
There is a quiet bonus in this, and it is the same machinery that builds the couple's £1,000,000 combined threshold. Because the first estate is covered by the exemption rather than by the nil-rate band, the deceased's allowances are not used up. The £325,000 nil-rate band and the £175,000 residence nil-rate band sit unused, and the unused percentage transfers to the survivor's estate. We explain the full mechanics, including the claim forms, in our guide to the inheritance tax threshold for married couples and the RNRB.
One practical caveat: the exemption only works if the pension actually reaches the spouse. Expression of wish forms are not wills, and an out-of-date nomination naming a former partner, or splitting the fund between a spouse and adult children, changes the tax picture on death. From 2027, any share that does not pass to the spouse or to charity is inside the taxable estate. If someone dies without a will, the pension nomination and the intestacy rules operate separately, which can produce unexpected splits; see how intestacy divides an estate between a spouse and children.
The second death: the accumulation problem
Here is where married couples specifically need to look further ahead than most 2027 commentary does. Deferral is not avoidance. Everything the exemption protected on the first death lands in the survivor's estate, and the second death is assessed on the accumulated whole.
Consider what the survivor's estate now typically contains:
- Their own assets: home share, savings, investments.
- Everything inherited from the first death: the other half of the home, the joint savings, personal assets.
- Their own remaining pension fund, now counted in the estate from 2027.
- Whatever remains of the inherited pension wealth, whether drawn into savings or held as an inherited pension.
Against that stands the couple's combined allowances: up to £650,000 of nil-rate bands and up to £350,000 of residence nil-rate band, a maximum of £1,000,000 where a qualifying home passes to direct descendants. Everything above the available threshold is taxed at 40%, or 36% where 10% or more of the net estate goes to charity.
| Stage | Before 6 April 2027 | From 6 April 2027 |
|---|---|---|
| First death, pension to spouse | Pension outside the estate; no IHT | Pension in the estate but spouse exempt; no IHT |
| Survivor's lifetime | Pension wealth sits outside IHT planning | Pension wealth is part of the eventual taxable estate |
| Second death | Remaining pensions typically pass IHT-free | Unused pensions counted; taxed above the combined allowances |
| RNRB taper | Pensions ignored for the £2m test | Pensions count towards the £2m taper threshold |
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The taper trap: how pensions can dismantle the RNRB
The residence nil-rate band is withdrawn by £1 for every £2 the estate exceeds £2,000,000, under the rules in HMRC's residence nil-rate band guidance. A single estate loses the RNRB entirely at £2.35 million; a couple's combined RNRB is fully gone once the second estate reaches £2.7 million.
Before 2027, pension funds did not count towards that £2,000,000 test, so a couple with a £1.6 million estate and £600,000 of pensions kept their full RNRB. From 6 April 2027, the pensions count. That same couple's second estate is now assessed at £2.2 million, stripping £100,000 off the RNRB and adding £40,000 of tax, before the pension itself is even taxed. Survivors in this position face two compounding effects at once: more assets in the estate, and fewer allowances to set against them. This is exactly the second-death scenario the pensions IHT 2027 estimator is built to model, and our research on the 2027 pension inheritance tax change sets out how many estates cross these lines.
Married couples versus unmarried partners: the sharpest divide in the reform
Everything above rests on one word: spouse. The exemption applies only to legal spouses and registered civil partners, and civil partners are treated identically to married couples throughout. Unmarried and cohabiting partners, however long the relationship, get none of it.
From 6 April 2027, a pension left to an unmarried partner is inside the taxable estate with no exemption. The deceased's single £325,000 nil-rate band must stretch across the home share, the savings and now the pension, and the residence nil-rate band cannot help because a partner is not a direct descendant. There are no transferable allowances either. A married couple with £500,000 of pension wealth pays nothing on the first death; an unmarried couple in the identical financial position can face a six-figure bill. Couples in this situation should also be aware that intestacy law gives an unmarried partner nothing automatically, which makes wills and up-to-date nominations even more important.
What married couples may want to review before April 2027
Without straying into advice, the sensible review points are practical and mostly free:
- Check your expression of wish forms. Confirm who each scheme would actually pay, and that it matches your intentions and your will.
- Map the combined estate including pensions. Add both pension funds to the usual estate figures and test the total against £1,000,000 and against the £2,000,000 taper line.
- Look at the second death, not the first. The first death is usually exempt; the planning question is what the survivor's estate will look like.
- Understand the executor's role. From 2027, personal representatives must report and pay the pension element, and schemes can withhold up to 50% for up to 15 months to help fund it. Whoever you name as executor inherits that job.
- Take regulated advice for decisions. Anything involving drawing, transferring or restructuring pensions is a regulated financial advice matter, not something to act on from an article.
Speak to a specialist
This guide explains the rules; it is not legal or financial advice. If your household's pensions and estate together are anywhere near the thresholds, a conversation with a specialist is worth having well before April 2027, and the position of a surviving spouse deserves particular care; our guide for surviving spouses and our hub for pension holders facing the 2027 change are good starting points. We can connect you with vetted estate planning specialists, and our free pensions IHT 2027 estimator will show you in two minutes whether the change is likely to touch your family at all.