Pensions and inheritance tax: what changes in April 2027 (UK)

28 August 2026 · Inherit Vault

For as long as most people have been paying into one, a pension has been the one pot inheritance tax couldn't reach. That stops on 6 April 2027. From then, most unused pension money counts as part of your estate. And it's your executor who has to sort the bill, not the pension company.

What actually changes in April 2027

It was announced at Autumn Budget 2024 and legislated for in Finance Act 2026. From 6 April 2027, most unused pension funds and pension death benefits get added into the value of your estate for inheritance tax. HMRC published a technical note in May 2026 explaining how it'll work. Deaths before that date keep the old treatment. Die on 5 April 2027 and the pot still sits outside the estate.

Death in service is staying out of it

One useful carve-out survived the consultation. All death in service benefits paid from a registered pension scheme are excluded from your estate from 6 April 2027. So the lump sum your employer pays if you die while still working, usually two or four times salary, doesn't get dragged in. Not every employer's cover runs through a registered scheme, so it's worth checking which yours is.

Your executor pays, not the pension provider

The original plan put the job on pension scheme administrators. The industry pointed out how badly that would work. The response to the consultation confirmed the switch: personal representatives, your executors in normal words, are liable for reporting and paying the tax. That's a problem if nobody knows which pensions exist. The Pension Tracing Service finds a scheme's contact details, but only if you can name the employer or provider.

The 50% hold, and how the tax gets paid

Executors do get one lever, and it's blunt. If your executor reasonably expects inheritance tax to be due, they can direct the scheme administrator to withhold 50% of the taxable benefits. That hold lasts up to 15 months from the date of death. The administrator pays the tax to HMRC before releasing the rest to the beneficiaries. Withdraw the instruction, or let the 15 months run out, and the money goes out anyway. It doesn't apply to exempt benefits, funds under £1,000, or annuities that carry on paying.

There are two taxes here, not one

The income tax rules on inherited pensions aren't going anywhere. Die before 75 and most lump sums come out with no income tax, as long as they're within the lump sum and death benefit allowance, currently £1,073,100. Die at 75 or over and the provider deducts income tax at the beneficiary's own rate. From April 2027 the same pot can be taxed twice: inheritance tax in the estate, then income tax in your children's hands.

The two year trap that already exists

If the owner died under 75 but the lump sum is paid more than two years after the provider was told, income tax is due on the whole lot. The provider deducts it before paying out. So whoever's dealing with the estate has to tell the provider within 13 months of the death. HMRC has its own deadline. If lump sum death benefits go over the allowance and the person died under 75, tell HMRC within 13 months of the death, or 30 days after you realise tax is owed, whichever is later.

Spouses and civil partners still walk straight through

None of this touches the spouse exemption. Anything left to a husband, wife or civil partner is still free of inheritance tax, pension included. The nil rate band stays at £325,000. The residence nil rate band adds up to £175,000 more when a home passes to children or grandchildren. Above that it's 40%, or 36% if 10% or more of the net estate goes to charity.

A worked example, with real numbers

Say your dad dies at 78 in June 2027. He leaves a house worth £350,000 to you and your sister, £75,000 in savings, and £250,000 in a drawdown pot. Under the old rules the estate is £425,000, under the £500,000 of combined allowances, so no inheritance tax at all. Add the pension and the estate is £675,000. Take off the £500,000 and £175,000 is taxable at 40%. That's £70,000 to HMRC. You and your sister then pay income tax at your own rates on whatever you draw from the rest, because he was over 75.

The six month deadline nobody budgets for

Inheritance tax has to be paid by the end of the sixth month after the month of death. HMRC charges interest after that. Die in June and the money is due by 31 December. You normally have to pay some of it before you can get the grant of probate, too. That's the classic bind: tax owed on money the executor can't touch yet. The 50% hold exists so executors aren't funding it out of their own pockets.

Two things worth doing before 2027

Check the expression of wish form on every pension you hold. That's what tells the scheme who to pay, and plenty of them still name an ex-partner from fifteen years ago. Then write down where the pensions are: provider, scheme name, policy number, rough value. Emptying a pot early to dodge the change is usually the wrong move. You'll pay income tax at your marginal rate on the way out, and the cash sits in your estate anyway.

April 2027 turns the pension from the asset nobody had to think about into the one your executor has to find, value and pay tax on inside six months. Most of that job isn't clever planning. It's knowing what exists. A list of your schemes, the policy numbers and who you've named on each form is worth more to your family than anything they can't see.

Sources

HMRC policy paper, Inheritance Tax: unused pension funds and death benefits, the 50% withholding and the £1,000 exclusion: https://www.gov.uk/government/publications/inheritance-tax-unused-pension-funds-and-death-benefits HMRC technical note, Inheritance Tax on pensions, how the Finance Act 2026 rules work in practice: https://www.gov.uk/government/publications/inheritance-tax-on-pensions-technical-note HMRC consultation response, confirming personal representatives are liable: https://www.gov.uk/government/consultations/inheritance-tax-on-pensions-liability-reporting-and-payment GOV.UK, Tax on a private pension you inherit, the under 75 rule and the two year deadline: https://www.gov.uk/tax-on-pension-death-benefits GOV.UK, the lump sum and death benefit allowance of £1,073,100: https://www.gov.uk/tax-on-your-private-pension/lump-sum-allowance GOV.UK, Inheritance Tax thresholds, rates and the spouse exemption: https://www.gov.uk/inheritance-tax GOV.UK, paying Inheritance Tax by the end of the sixth month after death: https://www.gov.uk/paying-inheritance-tax GOV.UK, Pension Tracing Service, finding contact details for a lost scheme: https://www.gov.uk/find-pension-contact-details

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