From 6 April 2027, most unused pension funds and pension death benefits will be included in the value of your estate for inheritance tax. That is the whole change in one sentence. Today, a defined contribution pension pot paid out at the scheme's discretion usually passes to your family free of inheritance tax, whatever its size. For deaths on or after 6 April 2027, that money counts alongside your house and savings, and anything above your available thresholds is taxed at 40%.
Two big protections survive. Pensions passing to a spouse or civil partner remain exempt, and death in service benefits from registered pension schemes are excluded from the charge entirely. But HMRC's own estimates show the reform has real teeth: around 10,500 estates a year become newly liable for inheritance tax, a further 38,500 pay more than they otherwise would, and the average increase for those paying more is around £34,000. If you want to know where your own family is likely to land, our free pension inheritance tax 2027 estimator works through your pension, property and savings figures in about two minutes.
This guide covers the rules for England and Wales terminology (executors, probate), though inheritance tax itself applies UK wide. It is general information, not legal, tax or financial advice, and it makes no recommendation about any pension product or transfer.
What the rules are now, and what they become
Under current law, most pension death benefits are not part of your estate for inheritance tax. The technical reason is that most modern schemes pay death benefits at the trustees' or scheme administrator's discretion, guided by your nomination form but not bound by it, and discretionary payments of that kind fall outside the estate. The practical result has been that pensions became one of the most tax efficient assets to die holding, and the government concluded that pots were increasingly being preserved as an inheritance vehicle rather than spent as retirement income. That is the stated rationale in the government's technical note and policy documents, first announced at the Autumn Budget on 30 October 2024.
From 6 April 2027 the discretion point stops mattering for inheritance tax. Whether or not the scheme pays at its discretion, unused pension funds and death benefits are brought into the value of the estate. The current rules, including the quirks and exceptions that already exist, are covered in detail in our companion guide to how pension death benefits are taxed under the current rules.
| Question | Deaths before 6 April 2027 | Deaths on or after 6 April 2027 |
|---|---|---|
| Is an unused pension pot in the estate for IHT? | Usually no (discretionary death benefits sit outside) | Yes, in most cases |
| Pension left to spouse or civil partner | No IHT | Still no IHT (spouse exemption applies) |
| Death in service lump sum (registered scheme) | Usually outside the estate | Excluded from the new charge |
| Who deals with any IHT on the pension? | Rarely arises | The personal representatives report and pay |
| Rate on the taxable excess | 40% (36% with 10%+ to charity) | 40% (36% with 10%+ to charity), unchanged |
Note what has not changed. The nil-rate band is still £325,000 per person, the residence nil-rate band still adds up to £175,000 where a home passes to direct descendants, both are frozen until 5 April 2031, and a married couple or civil partnership can still combine allowances to pass on up to £1,000,000 tax free. Our guide to the UK inheritance tax threshold walks through those numbers. What changes is what gets measured against them: adding a £300,000 pension pot to a £700,000 house and savings estate is exactly how a family that never expected an inheritance tax bill acquires one.
Who is affected, in HMRC's own numbers
The government published impact estimates alongside the policy, and they are worth quoting precisely because most commentary rounds them into vague phrases like "more estates will pay". HMRC estimates that each year from 2027/28:
- Around 10,500 estates will become liable for inheritance tax that would have paid none under the old rules.
- A further 38,500 estates that would already have paid some inheritance tax will pay more.
- For those paying more, the average increase is around £34,000.
Set against roughly 650,000 UK deaths a year, that still leaves the large majority of estates paying nothing. The change lands hardest on a specific profile: people with meaningful defined contribution pension savings who die before spending them, especially where the estate already sits near the threshold because of property values. We set out the affected groups, the year-by-year Exchequer yield and a worked estate model on our research page, Pensions and inheritance tax 2027: the data, which is the evidence base behind this cluster of guides. For a personal answer to "does this include me", start with who is affected by the pension IHT change or go straight to the estimator.
The two key carve outs: spouses and death in service
Spouse and civil partner exemption continues
Anything passing to a spouse or civil partner is exempt from inheritance tax, and that continues to apply to pensions under the new rules. So on a first death where the pension goes to the surviving husband, wife or civil partner, no inheritance tax should arise on it. The pressure point moves to the second death, when the survivor's estate, potentially now holding two lifetimes of pension savings alongside the family home, is measured against the combined allowances. Married couples should read our guide to how the 2027 pension rules work for married couples, and surviving spouses managing an estate now will find our surviving spouse hub a gentler starting point. Unmarried partners get no equivalent exemption, which makes the change considerably sharper for cohabiting couples.
Death in service benefits are excluded
Death in service benefits payable from registered pension schemes are excluded from the new charge. This was confirmed in the government's response to consultation, and it matters enormously for working age families, because a death in service lump sum is typically a multiple of salary paid on top of any pension pot. The boundary between an excluded death in service benefit and an included death benefit has some technical edges, which we cover in death in service benefits and the 2027 IHT rules.
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Executors carry the new workload
The mechanics are the part of the reform that changed most between announcement and final policy. The original proposal would have made pension scheme administrators responsible for reporting and paying inheritance tax on the pension. After consultation, the government switched course: personal representatives (the executors named in the will, or administrators where there is no will) are legally responsible for reporting the pension values and paying any inheritance tax due on unused pension funds and death benefits, as set out in the consultation outcome.
In practice, an executor dealing with a death from April 2027 onwards will need to:
- Identify every pension the person held, including old workplace pots, and notify each scheme of the death.
- Obtain a valuation of the unused funds and death benefits from each scheme.
- Include those values in the inheritance tax account submitted to HMRC alongside the rest of the estate.
- Arrange payment of the tax attributable to the pension, using estate funds or the withholding mechanism below.
- Only then see the remaining benefits released to the beneficiaries.
To stop executors being forced to pay tax on money they cannot yet touch, the rules allow a pension scheme to withhold up to 50% of the pension amount for up to 15 months to help fund the inheritance tax liability. That is a practical safety valve, but it also means beneficiaries may wait longer for pension money than they would have under the old regime. If you are, or expect to be, an executor, our guides to the executor's pension reporting duties from 2027 and the wider executor hub cover the task list in detail, and the general estate administration process is explained in our probate guide.
Why this catches people out: frozen thresholds plus pension pots
Neither half of this squeeze is dramatic on its own. The inheritance tax thresholds have been frozen for years: £325,000 nil-rate band until 5 April 2031, £175,000 residence nil-rate band on the same freeze, with the residence band tapering away by £1 for every £2 of estate value above £2,000,000. Meanwhile the average defined contribution pot at retirement has grown steadily. Put the two together and a household that was comfortably under the line, say a £600,000 home plus £150,000 of savings against a £1,000,000 couple's allowance, can be pushed well over it by £400,000 of combined unused pension funds. Larger estates face a second order effect too: adding the pension to the estate value can trigger the residence nil-rate band taper, an interaction we unpack in the RNRB taper and pension inheritance tax and in our guide to the married couples' threshold and RNRB.
What to understand before April 2027
Nothing needs filing in advance, and this change is legislated policy rather than a proposal, so planning on the assumption it happens is reasonable. Sensible, product neutral steps are:
- Know your numbers. Add up pensions, property and savings and compare the total with your available allowances. The 2027 estimator does this for you.
- Check nomination forms. Expression of wishes forms still direct who receives the pension. They do not change the tax, but out of date forms cause real problems.
- Review your will. A will written when pensions sat outside the estate may distribute assets in a way that no longer makes sense.
- Brief your executors. They will carry the reporting duty, so a simple list of your pension schemes and policy numbers is genuinely valuable.
- Take regulated advice for big decisions. Anything involving drawing, transferring or restructuring a pension is a regulated financial advice matter and outside the scope of this article.
Pension holders planning ahead of the change will find the whole topic organised on our pension holders 2027 hub, and the key milestones between now and April 2027 are tracked in the 2027 timeline and key dates.
Speak to a specialist
If your estate looks likely to be caught, or you are an executor facing the new reporting duties, a conversation with a specialist is usually worth far more than another article. We are an information and free calculator service, not a law firm or financial adviser, but we can connect you with vetted estate planning and probate specialists who deal with pension and inheritance tax questions every week. Run your figures through the pension inheritance tax 2027 estimator first, and you will arrive at that conversation knowing roughly what is at stake.