Pensions into Inheritance Tax from April 2027
Pensions into Inheritance Tax from April 2027: the impact model
From 6 April 2027 most unused pension funds and death benefits count towards Inheritance Tax. A sourced read on who is affected, drawn from HMRC's own policy paper and statistics, with worked examples showing the effect on real estates.
Key findings
- HMRC expects around 10,500 estates a year to become newly liable for Inheritance Tax (1.5% of UK deaths) and around 38,500 a year to pay more than they otherwise would, out of roughly 213,000 estates a year with inheritable pension wealth.
- The average Inheritance Tax increase is around £34,000 per estate.
- HMRC expects the measure to raise £640m in 2027-28, rising to £1,460m by 2029-30.
- It will be personal representatives, not pension scheme administrators, who are liable for reporting and paying the tax, a reversal of the original consultation proposal.
- Money passing to a surviving spouse or civil partner, and to registered charities, remains exempt.
Source: HMRC policy paper and tax information and impact note, 21 July 2025. Figures may be cited with attribution to Estate Planning Specialists.
What is changing
From 6 April 2027 most unused pension funds and death benefits payable from registered pension schemes are included in the value of a person's estate for Inheritance Tax. Personal representatives, not pension scheme administrators, are liable for reporting and paying the tax (a reversal of the original consultation proposal). A new scheme will let beneficiaries direct pension scheme administrators to pay the Inheritance Tax on their behalf directly to HMRC.
The change was announced at Autumn Budget 2024, consulted on between 30 October 2024 and 22 January 2025, and confirmed in the government response and policy paper published on 21 July 2025. HMRC's stated reason: “HMRC states pension schemes were increasingly used and marketed as a tax planning vehicle to transfer wealth rather than for funding retirement, and the change removes inconsistencies in the Inheritance Tax treatment of different types of pensions.”
What stays outside Inheritance Tax
The consultation response confirmed several exclusions:
- All death in service benefits payable from a registered pension scheme, whether the scheme is discretionary or non-discretionary (consultation response, 21 July 2025)
- Dependants' scheme pensions from a defined benefit arrangement or a collective money purchase arrangement (policy paper, 21 July 2025)
- Benefits passing to a surviving spouse or civil partner: the existing spouse/civil partner exemption applies, including survivor payments under a joint life annuity where the survivor is a spouse or civil partner
- Benefits passing to registered charities: existing charity exemption maintained
Who is affected: HMRC's own numbers
HMRC's tax information and impact note (21 July 2025) estimates that in 2027-28, out of around 213,000 estates with inheritable pension wealth, around 10,500 estates a year will become liable for Inheritance Tax where previously they would not (roughly 1.5% of UK deaths), and approximately 38,500 estates a year will pay more Inheritance Tax than they otherwise would, with an average increase of around £34,000.
For context, HMRC's Inheritance Tax liabilities statistics show 31,500 taxpaying estates in 2022-23, which is 4.62% of UK deaths, with total liabilities of £6.7 billion and an average bill of £212,000.
Expected Exchequer yield from the measure, by year (£m).
| Tax year | Taxpaying estates | IHT liabilities |
|---|---|---|
| 2020-21 | n/a | £5.76bn |
| 2021-22 | 27,800 | £5.99bn |
| 2022-23 | 31,500 | £6.7bn |
The residence nil rate band taper: the hidden 60% band
The change interacts with the residence nil rate band (RNRB) in a way that catches larger estates. The RNRB, worth up to £175,000 where a home passes to direct descendants, is tapered away by £1 for every £2 the estate exceeds £2,000,000. Under current rules a pension pot does not count towards that threshold. From April 2027 it will.
That means a pension can do double damage: it is taxed at 40% itself, and it can strip out RNRB that the estate would otherwise have kept. Within the taper band, each extra £1 of estate costs 40p of tax plus 20p of lost allowance relief, an effective marginal rate of 60%.
Worked scenarios (illustrations, not statistics)
Illustrations only. Computed arithmetically from the stated 2026/27 rules and assumptions below; they are not statistics and not advice. Assumes nil rate band £325,000, residence nil rate band £175,000 (home passing to direct descendants), RNRB tapered by £1 for every £2 the estate exceeds £2,000,000, IHT rate 40%, no other reliefs or exemptions, and that thresholds are unchanged at the relevant date.
Scenario 1: Estate of £500,000 plus £300,000 unused pension pot, home to children
Newly liable: pays nothing today, £120,000 from April 2027.
Scenario 2: Estate of £900,000 plus £400,000 pension, home to children
Already taxpaying; extra £160,000, exactly 40% of the pension.
Scenario 3: Estate of £1,800,000 plus £500,000 pension: RNRB taper case
Pension pushes the estate to £2,300,000, so RNRB is tapered from £175,000 to £25,000. Extra IHT £260,000 on a £500,000 pension: £200,000 taxed at 40% and the £300,000 slice above £2,000,000 at an effective 60% marginal rate (40% plus the RNRB clawback).
Scenario 4: Widowed person, estate £1,000,000 plus £600,000 pension, full transferred allowances
Doubled NRB and RNRB via transferable allowances (£650,000 plus £350,000). No IHT today; £240,000 from April 2027.
Money left directly to a surviving spouse or civil partner, including pension death benefits, remains exempt in all cases.
Want your own numbers? Use our pensions and IHT 2027 estimator to model your estate and pension against the April 2027 rules in under a minute.
Methodology and sources
Impact figures (estates with inheritable pension wealth, newly liable estates, estates paying more, average increase, Exchequer yield) are taken directly from HMRC's policy paper and tax information and impact note, “Inheritance Tax on unused pension funds and death benefits”, published 21 July 2025. Scope and process details come from the technical consultation “Inheritance Tax on pensions: liability, reporting and payment” and its summary of responses (both 21 July 2025). Context figures on taxpaying estates and liabilities come from HMRC's accredited official statistics, “Inheritance Tax liabilities statistics” commentary, updated 31 July 2025 (latest detailed data: tax year 2022 to 2023). Worked scenarios are our own arithmetic from stated assumptions and are clearly labelled as illustrations.
- Inheritance Tax on unused pension funds and death benefits (policy paper / tax information and impact note), HM Revenue & Customs, published 21 July 2025
- Inheritance Tax on pensions: liability, reporting and payment (technical consultation, 30 October 2024 to 22 January 2025; outcome published 21 July 2025), HMRC
- Inheritance Tax on pensions: liability, reporting and payment - summary of responses, HMRC, 21 July 2025
- Inheritance Tax liabilities statistics: commentary, HMRC accredited official statistics, updated 31 July 2025 (data to tax year 2022 to 2023)
Download the impact and context figures (CSV)
Free to cite and republish with attribution to Estate Planning Specialists. This page is a data summary and does not constitute tax or legal advice on any individual situation.
Wondering what this means for your own estate?
If you hold a defined contribution pension, the April 2027 change may bring your estate into Inheritance Tax for the first time, or increase the bill you already expect. Our team can talk through your specific pension and estate position.
Frequently asked questions
Do pensions pay Inheritance Tax now?
Generally no. Before 6 April 2027, unused defined contribution pension funds and most discretionary death benefits sit outside the estate for Inheritance Tax. That is precisely what changes: from 6 April 2027 most unused pension funds and death benefits are counted in the estate.
How many people will actually be affected?
HMRC's own impact note estimates around 10,500 estates a year will become newly liable (about 1.5% of UK deaths) and around 38,500 a year will pay more than they otherwise would, out of roughly 213,000 estates a year with inheritable pension wealth. Most estates will still pay no Inheritance Tax at all: in 2022-23 only 4.62% of UK deaths resulted in a bill.
Will my spouse pay Inheritance Tax on my pension?
No. Anything passing to a surviving spouse or civil partner remains covered by the spouse exemption, including pension death benefits and survivor payments under a joint life annuity. Exempt beneficiaries will be able to take their benefits immediately.
Are death in service benefits caught?
No. The consultation response confirmed that from 6 April 2027 all death in service benefits payable from a registered pension scheme are out of scope, whether the scheme is discretionary or non-discretionary. Dependants' scheme pensions from defined benefit or collective money purchase arrangements are also excluded.
Who actually pays the tax on a pension from 2027?
Personal representatives (usually the executors) are liable for reporting and paying it, alongside the rest of the estate's Inheritance Tax. A new scheme will allow beneficiaries to direct the pension scheme administrator to pay the tax on their behalf directly to HMRC.
What is the 60% rate people mention?
It is the effective marginal rate inside the residence nil rate band taper. The RNRB is withdrawn by £1 for every £2 an estate exceeds £2,000,000, so each £1 in that band costs 40p of tax plus 20p of clawed-back allowance. From April 2027 a pension counts towards that £2,000,000 test, so a pension can push an estate into the taper even though it never did before.