Your pension could contribute to an Inheritance Tax bill if you die on or after 6 April 2027. Most unused pension funds and pension death benefits will be considered alongside your property, savings and other assets.
Not every pension benefit will be subject to Inheritance Tax, but families who have preserved pension wealth with the intention of passing it on should review whether that strategy will continue to work as intended.
For many years, pensions have offered more than an income in retirement. People with substantial estates have often spent other savings first, leaving their pension untouched in the hope that more of it would eventually reach their children or other beneficiaries.
That position is changing. From 6 April 2027, most unused pension funds and pension death benefits will be brought into the estate for Inheritance Tax purposes. The rules form part of the Finance Act 2026, which received Royal Assent on 18 March 2026.
Erin Clarke, Managing Associate and Head of our Wills and Probate team, explains what the changes mean, how they could affect your estate and what you may wish to consider before April 2027. Erin Clarke specialises in Private Client work, including Wills and estate planning and administration.
What changes to Inheritance Tax on pensions are coming in April 2027?
Most unused pension funds and pension death benefits will be included when the value of your estate is calculated for Inheritance Tax.
The change applies where the pension holder dies on or after 6 April 2027, even if the pension was built up many years earlier. If someone dies before that date, the existing rules will apply even where the pension benefits are paid afterwards.
The reforms will affect many pension arrangements, including money purchase arrangements. Certain death benefits connected with defined benefit arrangements can also fall within the new rules.
However, there are exclusions. These include certain dependants’ scheme pensions, qualifying death-in-service benefits and some joint-life annuities.
The rules are detailed, so the treatment of a particular pension will depend on the type of arrangement and the benefits payable after death.
Is my pension currently exempt from Inheritance Tax when I die in the UK?
Many defined contribution pensions currently sit outside a person’s estate for Inheritance Tax purposes, although the precise treatment depends on the pension arrangement.
This has allowed some families to preserve pension wealth while using savings, investments and other assets during retirement.
Consider someone who owns a valuable home, has invested throughout their working life and has also built up a substantial pension. Their estate plan may have assumed that their pension would pass separately, leaving more of their available Inheritance Tax allowances to cover their property and investments.
That assumption may no longer hold for deaths on or after 6 April 2027.
This is why it is important to look at your pension as part of your wider estate planning, rather than treating it as a separate asset. Your Will, pension arrangements, property, savings and investments can all affect what ultimately passes to the people you want to benefit.
Will my children have to pay more tax on an inherited pension after the April 2027 changes?
They could ultimately receive less if including your pension increases the value of your estate above the available Inheritance Tax allowances.
The effect will depend on factors including:
- the total value of your estate
- who inherits your assets
- the exemptions and reliefs available to your estate
- the value and type of your pension benefits.
The existing nil-rate band is £325,000, while an additional residence nil-rate band of up to £175,000 can be available where the relevant conditions are met. The residence nil-rate band begins to taper for estates worth more than £2 million.
Inheritance Tax is generally charged at 40% on the part of an estate above the available tax-free thresholds.
Including pension wealth may therefore increase the taxable value of an estate. For some families, it may also affect how much residence nil-rate band is available.
If your pension represents a substantial part of what you intend to leave behind, reviewing your overall position can help establish whether your existing estate plan will still achieve what you intended.
Can an inherited pension be subject to both Inheritance Tax and Income Tax?
Both Inheritance Tax and Income Tax can be relevant when pension benefits are inherited.
The Income Tax treatment depends on factors including the pension arrangement, the pension holder’s age when they die and how the beneficiary receives the benefits.
The new legislation also includes provisions dealing with the interaction between Inheritance Tax and Income Tax where pension death benefits are involved.
For this reason, decisions about pension withdrawals, beneficiaries or gifts should not be based on the headline Inheritance Tax rate alone. They should form part of a wider assessment of your estate planning and your financial needs throughout retirement.
Do executors have to include pension savings in the estate for Inheritance Tax from April 2027?
Personal representatives will have additional responsibilities under the new system.
A personal representative is the person legally responsible for administering someone’s estate after their death. This will usually be an executor named in a Will or an administrator where there is no Will.
Under the new rules, personal representatives will need to take reasonable steps to identify relevant pension schemes, contact the providers and obtain the necessary information, including valuations. HMRC’s technical note confirms that personal representatives will be responsible for reporting and paying any Inheritance Tax due on pension property brought within the new regime.
Where someone has several pensions, this could add another layer to the administration of their estate.
Keeping an up-to-date record of your pension arrangements, providers and other financial information can therefore make it easier for your executors to identify what needs to be dealt with after your death.
What happens to my pension when I die if my partner and I are not married?
If you and your partner are not married or in a civil partnership, you do not benefit from the same Inheritance Tax spouse or civil partner exemption.
This can create a very different estate-planning position for unmarried couples, even where they have lived together for many years and share their finances.
Your pension nomination may indicate who you would like to receive pension benefits, but your pension, Will and ownership of property should be considered together if your partner will depend on those assets after your death.
The 2027 reforms do not remove the role of pension scheme trustees or scheme rules in determining entitlement. HMRC confirms that, for discretionary schemes, trustees will continue to determine who receives death benefits after considering potential beneficiaries and any expression of wishes made by the member.
Should I withdraw money from my pension before April 2027 to reduce Inheritance Tax?
You should not withdraw pension funds simply because the Inheritance Tax treatment is changing.
Taking money out of a pension could create an Income Tax liability, reduce the funds available to support you during retirement and potentially leave the withdrawn money within your estate anyway if you retain it.
The issue may require particular care where a pension contains commercial property or other significant assets. An Inheritance Tax liability does not necessarily mean those assets can easily or quickly be converted into cash.
Any proposed changes to pension withdrawals should therefore be considered alongside regulated financial advice and your wider estate plan. Reducing a future tax liability should not come at the expense of maintaining the income and financial security you need during your lifetime.
Why should I review my pension nomination before April 2027?
You should review your pension nomination if it no longer reflects the people you want to benefit.
Marriage, divorce, bereavement and other changes in your family circumstances can leave an older expression of wishes out of step with your current intentions.
The new Inheritance Tax treatment does not mean that pension benefits will simply be distributed according to your Will. Trustee discretion and the rules of the pension scheme can remain relevant to who becomes entitled to the benefits.
A wider estate-planning review could therefore consider:
- Whether your Will still reflects your wishes.
- Whether your pension nominations are up to date.
- How your pension affects the overall value of your estate.
- Who you want to benefit after your death.
- Whether your retirement and estate-planning arrangements continue to work together.
Your Will and pension nominations should not be looked at in isolation, particularly where substantial pension wealth or several beneficiaries are involved.
When should I get legal advice about Inheritance Tax on my pension?
It may be sensible to review your estate planning if your pension represents a substantial proportion of your wealth or including it could take your estate above the available Inheritance Tax allowances.
Advice can also be particularly useful where:
- You are not married to or in a civil partnership with your partner.
- You have several pensions or beneficiaries.
- Your circumstances or wishes have changed since you made your Will.
- Your estate includes business or property interests.
- You have agreed to act as somebody’s executor.
You do not necessarily need to change your estate plan simply because the rules are changing. The important thing is understanding how the new treatment could affect your particular circumstances and whether your existing arrangements still achieve what you want them to.
How can Bromleys help with pension and Inheritance Tax planning?
Our Wills and Probate team can review how your pension fits alongside your Will, property and other assets and explain how the April 2027 Inheritance Tax changes could affect your existing plans.
We can help you consider whether your Will and wider estate-planning arrangements continue to reflect your wishes, including where pension wealth represents a significant part of what you intend to leave to your family. Erin Clarke, Managing Associate and Head of our Wills and Probate team, advises on Wills and estate planning and administration.
If you are concerned about how the pension changes could affect your estate or the people you want to provide for, call Bromleys on 0161 330 6821, complete our online enquiry form, or email bromleys@bromleys.co.uk to find out how our specialist team can help.