Pension inheritance tax from April 2027: what £100k could leave your family

Under the current rules, most unused pension money sits outside your estate. You can leave it to your children and inheritance tax doesn't touch it. For deaths on or after 6 April 2027 that changes. Most unused pension funds and death benefits will be counted alongside your house, savings and investments.

The change is already law. Finance Act 2026 received Royal Assent on 18 March 2026, but it only applies to deaths from 6 April 2027. Anyone who dies before then stays under the current rules.

Sources: HMRC technical note on inheritance tax on pensions and policy paper on unused pension funds and death benefits

Add up your house, your savings, your investments and every pension you have. Then compare the total with what you can pass on free of inheritance tax.

Above that line the standard rate is 40%. A single person's tax free threshold can rise to £500,000 when their home passes to children or grandchildren and the conditions are met. A married couple or civil partners can pass on more, where the survivor inherits the first partner's unused thresholds. The extra allowance for the home tapers away for estates over £2 million.

The government expects most estates to still have no inheritance tax to pay after 6 April 2027. That's its expectation rather than a rule. Your own total is the only number that tells you where your family stands.

Some pension money stays outside the estate altogether. Qualifying death in service benefits from a registered pension scheme are excluded. So are qualifying dependants' scheme pensions, such as a pension a final salary scheme pays to your dependants. Both come with conditions, so check how your scheme describes the benefit before you leave it out of your total.

Sources: GOV.UK guide to inheritance tax and policy paper on unused pension funds and death benefits

Example. I've used the same £100k of pension each time and assumed it sits entirely above your inheritance tax thresholds. A spouse or civil partner who inherits meets the conditions for the spouse exemption, including the residence conditions. A child who inherits pays income tax at 40% throughout, at the rates that apply outside Scotland. The full assumptions are at the end of the article.

Scenario 1: your spouse or civil partner inherits and you die before 75

This is the best outcome in the example. Inheritance tax is zero because your spouse or civil partner qualifies for the exemption. You died before 75 and they take the money from a qualifying drawdown fund. In this example they pay no income tax, so £100k stays £100k. Lump sums have different rules and can be taxed above the lump sum and death benefit allowance.

That only works if the pension actually goes to them. Who receives it is usually decided by the scheme under its own rules, guided by your nomination form. Keep this scenario in mind, because it's where scenario 4 begins.

Scenario 2: your children inherit and you die before 75

Leave the same pension to your children and inheritance tax applies. At 40% it leaves £60k of the £100k. The example assumes they take what's left from a qualifying drawdown fund. Because you died before 75, they pay no income tax in this case and receive £60k.

That's 40% gone from money you may have been told was the safest thing to pass on.

Scenario 3: your children inherit and you die at 75 or older

Age 75 is where the calculation changes. If you die at 75 or older, withdrawals from inherited drawdown are taxable as income.

Inheritance tax comes first. At 40% it leaves £60k. Income tax is then charged only on that £60k, so the slice already taken by inheritance tax isn't taxed twice. If your son or daughter pays 40% income tax on all of it, that's about £24k more. They keep about £36k. At 45% they keep about £33k.

Your children can soften this by drawing the money over several tax years, which my figures ignore. If they're already higher rate taxpayers, spreading it only helps so much. Income tax rates in Scotland are different, so a Scottish taxpayer's figures won't match these.

Source: HMRC technical note on inheritance tax on pensions

Imagine your mum dies after April 2027 and you're her executor. You've got the funeral, the house and every form with her name on it. Now you've got her pensions too.

Your executors, called personal representatives in the legislation, will be liable for reporting and paying any inheritance tax due on unused pension funds and death benefits. The pension scheme doesn't do this for them. Once the pension benefits vest in the beneficiary, HMRC can hold them and the personal representatives jointly responsible for the inheritance tax on those benefits.

Your executor can only report a pension they know exists. Every pension has to be found and valued before the tax can be worked out, including schemes from employers you left decades ago.

The hold back is the main protection. Your personal representatives can direct a scheme to withhold benefits. While that's in place, beneficiaries can take only 50% of the death benefits, for up to 15 months after the end of the month of death. That gives your executors time to work out the tax before the money is spent.

The deadline won't move to suit them. Inheritance tax on pensions is due by the end of the sixth month after the month of death. Late payment interest runs on anything still outstanding after that, whether or not the house has sold or the last pension has turned up.

Sources: policy paper on unused pension funds and death benefits and HMRC technical note on inheritance tax on pensions

For most people I wouldn't. Nobody knows how long they'll need their money. Care costs don't arrive with a warning. Leaving your pension until last can still be right. It just can't be the whole plan.

If you die before 75 and your spouse or civil partner can use a qualifying drawdown fund, they can usually take money from it free of income tax. While you are both here, agree what you would want the pension to do. Will it cover their own spending, help the children while your spouse is alive or stay invested? Write that down with your pension details and discuss the timing and tax implications before making withdrawals.

These moves can shift your family into a better scenario.

1. Add it up. List your house, savings, investments and every pension. Compare the total with the thresholds that apply to you.
2. Check who gets it. Find your nomination form, sometimes called an expression of wish. If it names a former partner or nobody at all, the scheme will usually decide under its own rules, without an up to date record of what you want.
3. Write the plan down. Keep a single page listing each pension company, its plan number and where the paperwork is. Add a line on what you'd want done with the money if your spouse or civil partner inherits it. Keep it with your will and tell your executor where it is.

Who decides who gets your pension

The 4 scenarios show how the rules interact. Your real numbers will almost certainly differ.

These examples ignore the effect of spreading withdrawals across tax years and the impact of personal allowances. You can check the rules for inherited pension payments and HMRC's guidance on inherited drawdown.

If your estate is below the thresholds that apply to you, there may be no inheritance tax to pay. Income tax can still apply when your family takes money from the pension.