Pensions and Inheritance Tax from April 2027: What Families Need to Know

Historically, many pension death benefits have generally fallen outside the deceased’s estate for Inheritance Tax, particularly where a scheme has discretion over payment. That has never meant every pension payment is exempt: existing rules can already bring some benefits within the charge.

Finance Act 2026 has enacted a wider change for deaths on or after 6 April 2027. Most unused pension funds and relevant death benefits will be included in the value considered for Inheritance Tax. This is enacted legislation with a future commencement date, rather than merely the original Budget proposal.

The distinction matters. Being counted for tax does not automatically mean an asset becomes controlled by your Will, or that the whole pension is taxed. Scheme rules, statutory exclusions, exemptions and available allowances still need to be examined.

The primary legislation is in Part 2 of Finance Act 2026. HMRC’s policy material describes the scope as “most unused pension funds and death benefits”, not all pensions without exception.

A relevant pension may be included in the tax assessment without any Inheritance Tax being payable. The answer depends on the estate as a whole, the benefit concerned and who receives it.

• The value of other assets, debts and relevant pension benefits.
• The available nil-rate band, including any transferable allowance where applicable.
• Whether the residence nil-rate band applies and the conditions attached to it.
• Spouse or civil partner and charitable exemptions.
• Other relevant reliefs and the circumstances of the estate.

The residence nil-rate band is not an automatic additional allowance for everyone who owns a home. Its availability depends on the statutory conditions and estate circumstances. Adding pension wealth to an assessment can alter the picture, so assumptions based only on a property and bank balance may need revisiting.

A solicitor or tax adviser can help distinguish the value brought into the assessment from the value on which tax is actually payable. A headline saying “all pensions will be taxed” obscures that important difference.

The rules cover relevant benefits from registered pension schemes and certain qualifying overseas or other specified schemes. For money purchase arrangements, unused funds available to provide death benefits can be relevant. Defined benefit arrangements require different treatment: relevant lump sum death benefits and certain continuation payments may be included, rather than treating every future pension payment as a single pot.

There are material exclusions. HMRC confirms that death-in-service benefits payable from registered pension schemes are excluded, whether discretionary or non-discretionary. Dependants’ scheme pensions from defined benefit or collective money purchase arrangements are also excluded.

Do not classify a payment from its informal name alone. Ask the scheme administrator what the benefit is, which scheme provisions apply and what information will be supplied for estate administration. Different arrangements held by the same person may have different treatment.

Personal representatives are the people responsible for administering an estate: executors named in a Will, or administrators where appropriate. Under the new arrangements, personal representatives will be responsible for reporting and paying Inheritance Tax on relevant pension benefits.

Some older accounts of the reforms describe pension scheme administrators as responsible for the pension tax reporting and payment. That reflected the original consultation proposal, which was superseded. Current HMRC material identifies personal representatives as responsible.

In practical terms, representatives will need to identify pension arrangements, obtain the relevant information from administrators, consider exemptions and include the appropriate values when working out the estate’s tax position. Coordination with schemes and beneficiaries may be important, particularly where payment decisions and tax reporting do not happen at the same time.

Families should keep clear pension records alongside their estate-planning documents. Executors should not assume a pension is irrelevant simply because its benefits are paid separately from the assets distributed under the Will.

The precise payment arrangements, supporting information and timing should be checked against current HMRC and scheme guidance when administering the estate. This article does not promise a fixed administration timescale or prescribe how tax should be funded in a particular case.

Beneficiaries may need to consider both Inheritance Tax and the separate Income Tax treatment of pension benefits. The taxes answer different questions: Inheritance Tax concerns the death estate and relevant benefits; Income Tax concerns payments or income received under pension tax rules.

Factors such as the type of benefit, the member’s age at death and applicable payment rules can affect Income Tax. Do not assume that an Inheritance Tax exemption also establishes the Income Tax answer, or that a single percentage can describe every beneficiary’s overall position.

Where both regimes are relevant, the interaction can be complex. Obtain case-specific advice before making financial decisions. This guide does not recommend withdrawals, transfers, investments or restructuring pensions to respond to the change.

Yes. HMRC confirms that existing Inheritance Tax principles providing exemption for pension death benefits passing to a surviving spouse or civil partner, and to registered charities, are maintained.

That does not mean marriage eliminates all tax issues. It matters who receives each benefit, whether the exemption’s conditions are satisfied and how the rest of the estate is distributed. Unmarried partners do not receive the spouse exemption merely because they have lived together for many years.

Even where an exemption applies on the first death, the surviving partner’s own later estate may need consideration. Cross-border circumstances and residence status can require specialist advice rather than a general assumption that every transfer is exempt.

They may make it sensible to reconsider your overall estate plan. Pension wealth can influence the resources available to family members and the tax position, even if the pension benefits are not distributed under the Will.

A pension nomination or expression of wish is not the same as a Will. It communicates your wishes to the scheme; its legal effect depends on the scheme’s rules. A Will does not necessarily override it or control pension death benefits.

For example, you may have intended one child to receive pension benefits and another to receive assets under the Will. Changes in values, tax or family circumstances could affect whether those arrangements still achieve your intended balance.

A Will and estate-planning review can consider beneficiaries, executors and existing provisions alongside pension information. It should not treat the Will in isolation or assume a tax change automatically requires a new document.

Review it, but do not change it solely because of a general article. Check whether it reflects your current wishes, who is named, when it was last updated and how the scheme treats nominations.

Marriage, separation, a death in the family or a new dependent may justify reconsideration independently of tax. A nomination can also have financial and tax consequences that require specialist assessment.

Discuss legal objectives with your solicitor and seek regulated financial advice where pension or investment decisions are involved. This article does not tell you which beneficiary to choose or recommend moving money between arrangements.

A review can be particularly useful where pension wealth is substantial, the estate is complex or advice has not been revisited for some time. It may also be appropriate if you have foreign property, business interests, a blended family or beneficiaries with particular needs.

The purpose is to check whether the documents still meet your objectives, not to insist that everyone changes their Will. Sometimes the existing Will remains suitable but records or nominations need attention; sometimes wider advice is needed.

Planning during life also includes decision-making if capacity is lost. The existing Will and LPA packages are Simple Will + 2 LPAs — £600, and Simple Mirror Wills + 4 LPAs — £1,100. No VAT is charged; OPG registration fees are separate.

These examples are simplified illustrations only and are not tax calculations or individual advice.

Example A: below the relevant allowances

A person leaves modest savings, other assets and a relevant unused pension. Even after the pension is included, the value assessed remains within the allowances available to that estate. Inclusion alone does not create tax payable.

Example B: pension wealth changes the picture

A person’s property and savings already use much of the available allowances. Adding a substantial relevant pension increases the value assessed and may produce or increase Inheritance Tax exposure. The actual result requires proper valuations, exemptions and reliefs to be checked.

Example C: benefits pass to a spouse or civil partner

Relevant death benefits pass to a surviving spouse or civil partner and qualify for exemption. That exemption can be important even though the benefits fall within the new assessment framework. It does not settle the treatment of assets passing to other beneficiaries or of the survivor’s later estate.

• Locate pension statements, scheme details and administrator contact information.
• Check nominations or expressions of wish against current family circumstances.
• Read your existing Will and identify whether its beneficiaries and executors remain appropriate.
• List other assets, debts, business interests and foreign property.
• Consider potential Inheritance Tax exposure with an appropriate adviser.
• Make relevant information accessible to the people who may administer your estate.
• Obtain regulated financial advice before pension or investment decisions.

Keep the exercise proportionate. Gathering information and understanding your position is usually a better starting point than reacting to an alarming headline or treating an online example as personal advice.