Inheritance tax on pensions 2027: what changes

This article is stated as at 31 October 2026. The rules are in Finance Act 2026, but HMRC's final guidance and its nil-rate band tool are due in spring 2027, and further regulations on split schemes and excepted estates are due in autumn to winter 2026/27. Take advice on your own circumstances before acting.

Inheritance tax on pensions in 2027 changes for anyone who dies on or after 6 April 2027: most unused pension funds and pension death benefits will count as part of the estate and can be taxed at 40% once the nil-rate bands are used up. Personal representatives, not the pension schemes, must report and pay that tax. For years a pension was the one pot most families could pass on free of inheritance tax, so owner-managers who have built large SIPPs or SSASs, and anyone planning to spend other savings first, have the most to review.

Inheritance tax on pensions in 2027: what changes on 6 April?

The change is now law, in sections 66 to 71 of Finance Act 2026, which received Royal Assent on 18 March 2026, and it applies across the UK to deaths on or after 6 April 2027. A death before that date carries no inheritance tax on the pension.

The rates and thresholds themselves are not changing, and our guide to inheritance tax thresholds and reforms explains how the bands and the taper work. The pension is simply added to everything else the person owned, so it uses up nil-rate band that would otherwise have sheltered the house or savings.

Inheritance tax rates and bands (UK-wide)	Amount
Standard rate	40%
Reduced rate on some assets where 10% or more of the net estate goes to charity	36%
Nil-rate band	£325,000
Residence nil-rate band, home left to children or grandchildren	£175,000
Residence nil-rate band taper starts at	£2 million

These bands are frozen until 5 April 2031, so they will also apply to deaths from 6 April 2027 (the full set of rates and allowances is in our UK tax tables for 2026/27 and 2027/28). So add your pension values to the rest of your estate now: if the total is above £325,000, or £500,000 where your home passes to children or grandchildren, assume your family could face a bill from 6 April 2027.

Which pension benefits count towards the estate?

Most of them. Unused funds in a SIPP, SSAS or personal pension, drawdown funds that have not been paid out and lump sum death benefits all form what the rules call notional pension property, valued as at the date of death. A few benefits are excluded altogether:

dependants’ scheme pensions, and a trivial commutation lump sum death benefit paid from one;
a dependants’ or nominees’ annuity bought with a lifetime annuity;
death in service payments from registered pension schemes, whether the scheme is discretionary or not.

The death in service exclusion is narrower than it looks: a lump sum paid on the death of a deferred member who has left the employer will not normally qualify, so it counts towards the estate like other death benefits.

Pensions left to a surviving spouse or civil partner, or to charity, remain exempt. The spouse exemption does depend on the survivor being a long-term UK resident, though, so couples with homes or family abroad should not assume it applies. Exempt benefits are also not deducted from the pension value; they are exempted separately, so executors must still report them.

How much could inheritance tax on pensions cost a family?

Take a hypothetical director, never married, who dies leaving a home worth £500,000 to their children, £300,000 of other assets and a £400,000 SIPP nominated to the children.

Estate (UK-wide)	Death before 6 April 2027	Death on or after 6 April 2027
Home and other assets	£800,000	£800,000
SIPP	Not included	£400,000
Estate for inheritance tax	£800,000	£1,200,000
Nil-rate band and residence nil-rate band	£500,000	£500,000
Taxable	£300,000	£700,000
Inheritance tax at 40%	£120,000	£280,000

The same family pays £160,000 more, which is the whole SIPP taxed at 40%. Had the director been married and nominated the SIPP to a spouse or civil partner who is long-term UK resident, no tax would arise on the pension at the first death, though it would count in the survivor’s estate. Larger estates face a second effect, because pension values now count towards the £2 million residence nil-rate band taper, so a pension can cost the family some or all of that band too.

Income tax adds another layer where the benefits are taxable in the beneficiary’s hands, for example where the member died after 75. The government’s July 2025 consultation response says income tax will not be due on the part of the death benefit equal to the inheritance tax on it, and that beneficiaries who take their benefits in full can claim back income tax paid on that amount. So if the rest of the estate has used the nil-rate bands, £100,000 of pension would bear £40,000 of inheritance tax, and on the government’s stated approach the beneficiary would pay income tax at their own marginal rate on the remaining £60,000. Some of the headline combined rates quoted online ignore that relief, so model the combined charge for your family before acting.

What executors must do, and by when

Personal representatives are liable for reporting and paying the inheritance tax on pensions, and must report the tax attributable to each scheme. Their personal liability is limited to the value of the assets passing directly through the estate. Beneficiaries become jointly and severally liable for the tax on the pension benefits they are entitled to from the point they are appointed, which is why paying out a pot before the tax is settled can leave a beneficiary owing tax on money already spent.

The scheme information duties are in SI 2026/818, laid on 15 July 2026. A scheme must give basic information within 28 days of receiving a request or, if the beneficiaries have not yet been decided, within 14 days of their being decided. Further information is due by the later of 28 days from the request or 14 days from all beneficiaries being decided.

Against that, the tax is due at the end of the sixth month after the month of death. In HMRC’s example, someone who dies on 23 April 2027 leaves tax due by 31 October 2027, with interest running after that. With schemes allowed 28 days to supply values and 35 days to pay over the tax, executors should write to every scheme promptly.

Executors who have made every effort to locate the deceased’s pensions and have received HMRC clearance are discharged from liability for any found afterwards, and the beneficiaries become solely liable for the tax on those, so trace old schemes early and keep a record of every search.

Withholding notices and having the scheme pay HMRC

If personal representatives reasonably expect inheritance tax to be due, they can direct a scheme to withhold up to 50% of the taxable benefits for up to 15 months from the date of death, then direct it to pay the tax to HMRC before releasing the rest. A withholding notice does not apply to exempt benefits, funds under £1,000 or continuing annuities. It covers only benefits not yet paid (unsecured drawdown counts as unpaid), and growth after death is not withheld. Someone who is not yet a personal representative can send information requests and withholding notices, but not a payment notice.

Within 14 days the scheme must confirm whether a notice is valid, and within 28 days it must give the total withheld and each beneficiary’s share. A scheme that fails to comply with a valid notice becomes jointly liable for the tax.

HMRC’s example uses a £300,000 pot split 60% to one beneficiary and 20% each to two others, with a withholding notice in place. The first beneficiary can take £90,000, half of a £180,000 share, and the other two £30,000 each, half of £60,000. The other half stays in the scheme until the tax is paid to HMRC or the notice ends.

To get the tax paid, personal representatives or beneficiaries can serve a payment notice under the Pensions Direct Payment Scheme, and the scheme then has 35 days to pay HMRC directly. Under HMRC’s technical note 2, the liability being paid, including interest, must be at least £1,000, and scheme rules that would restrict the payment are void.

For a SSAS or SIPP holding commercial property, check now whether the scheme has enough cash to meet a withholding or payment notice, because a forced property sale within months is rarely a good outcome.

What should pension savers do before April 2027?

Pension income is taxed as income when you draw it, so taking large sums out can cost more in income tax than it saves in inheritance tax. The steps we would look at are these:

review nominations and expressions of wish alongside your will, so the nil-rate band, the residence nil-rate band and the spouse exemption are used as you intend;
if your income comfortably covers your normal spending, drawing pension income to fund regular gifts out of surplus income may help, and our guide to workplace pension tax relief covers how relief works on what you pay in;
a lifetime annuity that continues as a dependant’s or nominee’s annuity, or a dependants’ scheme pension, can suit some people, because those continuing benefits are excluded;
make sure any life cover is written in trust.

Owner-managers should also look at the business. From 6 April 2026 the 100% business and agricultural property relief allowance rose from £1 million to £2.5 million, and any unused allowance is transferable between spouses and civil partners, so a couple can pass up to £5 million of qualifying assets on top of the nil-rate bands. The combined 100% rate allowance is fixed until 5 April 2031.

Any decision to buy an annuity, draw down or change scheme investments needs regulated financial advice. Our Budget 2026 summary covers the other measures affecting owners and families.

Key dates

Date	What happens (UK-wide)
18 March 2026	Finance Act 2026 receives Royal Assent
15 July 2026	SI 2026/818 on scheme information duties laid
Autumn to winter 2026/27	Further regulations on split schemes and excepted estates expected
Spring 2027	HMRC final guidance and supporting tools due
6 April 2027	Unused pensions and death benefits count towards the estate for deaths on or after this date
End of the sixth month after the month of death (31 October 2027 for a death on 23 April 2027)	Inheritance tax on pension property due; interest runs after this
15 months after the date of death	Longest a withholding notice can hold back up to 50% of taxable benefits
5 April 2031	Nil-rate band (£325,000) and residence nil-rate band (£175,000) frozen until this date

Questions clients ask

As an executor, how do I find out what pensions the deceased had and how much tax is due on them?

Write to every scheme promptly. Each must give basic information within 28 days of your request, or within 14 days of the beneficiaries being decided. Add the pension values to the rest of the estate to work out the tax; HMRC has announced an online tool to work out the nil-rate band attributable to them. Trace old schemes early: if you make every effort to find them and obtain HMRC clearance, you are not liable for any found later.

If I leave my pension to my wife or husband, is there still inheritance tax to pay?

Not on the benefits that pass to them, provided your spouse or civil partner is a long-term UK resident, because the spouse exemption continues from 6 April 2027. Your executors must still report those benefits, as they are not deducted from the pension value but exempted separately. Whatever your spouse or civil partner inherits and leaves unused can then fall into their own estate when they die, so plan for both deaths together.

Do I need to change my expression of wish or nomination form?

Review it alongside your will before 6 April 2027. Once unused pensions count towards the estate, who you nominate affects how the nil-rate band, the residence nil-rate band and the spouse exemption are used. A pension nominated to a spouse or civil partner who is long-term UK resident is exempt, while one nominated to children uses up nil-rate band. Pension values also count towards the £2 million point at which the residence nil-rate band tapers.

Can the pension scheme pay the inheritance tax so the executors do not have to find the money?

Yes. Personal representatives and beneficiaries can serve a payment notice under the Pensions Direct Payment Scheme, and the scheme then has 35 days to pay HMRC directly. The liability being paid, including interest, must be at least £1,000, and scheme rules that would block the payment are void. Serving a withholding notice first stops up to 50% of the taxable benefits being paid out in the meantime. A prospective personal representative cannot serve a payment notice.

Will my children pay income tax as well as inheritance tax on my pension if I die after 75?

They may, where the benefits are taxable in their hands. Say the rest of your estate has used the nil-rate bands and £100,000 of pension passes to a child: £40,000 of inheritance tax is due, and on the government's stated approach income tax is charged at the child's marginal rate on the remaining £60,000, not on the £40,000. HMRC's final guidance is due in spring 2027, so model the combined charge before acting.

Speak to us. To discuss how this affects you or your business, please contact your usual Jack Ross partner, call us on 0161 832 4451 or send us a message.

Inheritance tax on pensions 2027: what changes and what to do