Budget 2026: pensions and inheritance tax from April 2027
Did the Budget change the pension rules?
No. Budget 2026 on 28 October confirmed that most unused pensions will count towards your estate for inheritance tax from 6 April 2027.
The change is already law, under Finance Act 2026. The Budget only added small technical tweaks to how executors deal with it. If you were waiting to see whether it would be dropped, it has not been.
HMRC estimates that around 10,500 estates will pay inheritance tax for the first time because of the change, and around 38,500 will pay more. For those estates, the average bill is expected to rise by about £34,000. HMRC also says most estates will still pay none.
Around 213,000 estates a year are expected to include pension money. If you have built up a pension you do not expect to spend, this change is likely to affect you.
Our pensions and inheritance tax guide covers the basics. This post looks at what the Budget added.
What counts and what does not
Not every pension payment is treated the same. The type of benefit matters.
| Counts towards your estate | Does not count |
|---|---|
| Unused personal and workplace pension pots | Death-in-service benefits |
| Drawdown funds and lump sum death benefits | Dependants’ pensions from final salary schemes |
| Pensions where the scheme has a choice who to pay | Annuities that stop when you die |
Pensions left to a husband, wife or civil partner stay free of inheritance tax, and so do pensions left to charity.
What Budget 2026 added
The Budget made two changes, both starting on 6 April 2027.
- Earlier payment from the pension. Someone due to become executor can ask the pension scheme to pay the inheritance tax straight to HMRC, in certain cases, before probate is granted.
- Charity gifts. If your will leaves at least 10% to charity, the tax rate drops from 40% to 36%. Executors can now choose how pension money is treated when checking that 10% test.
Both are meant to make life easier for executors, who must report pensions and pay the tax.
Key deadlines for executors
HMRC has published the detail. These are the timescales your executors would work to.
- 28 days for a pension scheme to give a valuation after a valid request.
- Up to 50% of a pension can be held back by the scheme for up to 15 months, so money is there to pay the tax.
- £1,000 or more of tax can be paid by the scheme directly, within 35 days of being asked.
- 6 months after the end of the month of death, the tax is due and interest starts.
Read more in what does an executor do?
What to do before April 2027
A will written on the basis that pensions sit outside your estate may now give a different result.
It matters most in these situations:
- Second deaths. Pensions left to a partner are tax-free, but the bill can arrive when the second partner dies.
- Blended families. Children from an earlier relationship may inherit pension money that now carries tax. See our guide to blended family wills.
- Choosing executors. They will have more to do, so pick people who can manage it.
Check who your pension provider has on file to receive your pension. Make sure your executors know which pensions you have. For questions about how your pension fits with your will and estate plan, speak to us. Try our inheritance tax calculator with your pension included.
How PJH Estate Planning can help
PJH Estate Planning can review your will, LPAs and tax plans against the latest rules. Start 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
- GOV.UK: Budget 2026 overview of tax legislation and rates
- GOV.UK: Inheritance Tax on unused pension funds and death benefits
- GOV.UK: Technical note 2 on Inheritance Tax and pensions
General information as at October 2026. Not legal, financial or tax advice.