Pension inheritance tax changes 2027
Pension inheritance tax: what is changing in April 2027?
Unused pensions have usually passed on free of inheritance tax. From 6 April 2027, most unused pension money and death benefits will count towards your estate.
The change became law in the Finance Act 2026. Families who never expected to pay inheritance tax could now face a bill, especially where a pension is a large part of their wealth.
Before and after April 2027
| Before April 2027 | From April 2027 | |
|---|---|---|
| Unused pension money | Usually outside the estate | Usually included |
| Pension left to a spouse | No inheritance tax | Still none |
| Death-in-service payouts | Outside the estate | Still outside |
| Income tax if you die at 75+ | Payable by those inheriting | Still payable, on top |
Which pensions are affected?
The change mainly affects pension pots, where you build up a sum of money, rather than final salary pensions.
Usually included from April 2027
- Money left in personal pensions, SIPPs and workplace pension pots.
- Pension money you have started drawing but not spent.
- Most lump sums paid out on death.
Usually not included
- Death-in-service payouts from your employer's scheme.
- Pensions paid to dependants from final salary schemes.
- Pensions left to a husband, wife, civil partner or charity.
Unmarried partners do not get the spouse exemption, so a pension left to them could face tax.
How the change could affect your family
Adding a pension can turn a tax-free estate into a taxable one, and some families may pay both inheritance tax and income tax on the same money.
Peter is divorced and leaves everything to his two children. He has a £400,000 home, £100,000 in savings and £300,000 in his pension. He dies aged 78.
- Before April 2027: his £500,000 estate is fully covered by his allowances, so no tax is due.
- From April 2027: with the pension, his estate is £800,000. The £300,000 above his allowances is taxed at 40%: £120,000.
Because Peter was over 75, his children also pay income tax on what they take from the pension. Combined, tax could take up to 67% of the pension. A large pension can also push an estate over £2 million and reduce the home allowance. Peter is an illustrative example, so check your own figures with our inheritance tax calculator.
Who pays the tax, and when
From April 2027, your executors must report your pensions and pay any tax due on them.
- They will need to contact every pension provider to find out what is left.
- Tax is due within six months of the end of the month of death, or interest is charged.
- They can ask the pension provider to pay the tax directly from the pension.
This adds to an already demanding role, and executors can be personally liable for late or unpaid tax. See our guide to what an executor does.
What you can do now
There is still time to plan before April 2027. Reviewing your pension and your will together can make a real difference.
- Update the form telling each pension provider who should receive your pension, so it matches your will.
- Review your will, as your pension may change how much tax the rest of your estate pays.
- Think about which savings you spend first. Drawing more from your pension may now make sense for some people.
- Give regularly from spare income. These gifts can be tax-free straight away.
- Consider life insurance in trust to help cover any tax bill.
Pension decisions affect your income and retirement, so please speak with us about them alongside your estate planning.
How PJH Estate Planning can help
PJH Estate Planning can review your will and pension paperwork together as part of your inheritance tax planning before April 2027, and work with you so your plans fit the new rules. Find out what you could face in your current situation with our free Estate Health Check: 10 quick questions that show any gaps in your plans. You can visit our offices, or we can visit you at home.
Sources
General information as at October 2026. Not tax, legal, pension or financial advice.