Pensions and Inheritance Tax: What Changes on 6 April 2027?
This has made pensions a tax-efficient way to pass wealth to the next generation and has influenced retirement and estate-planning advice. From 6 April 2027, however, most unused pension funds and pension death benefits will be included when calculating IHT.
The new rules are settled
The change was announced at the Autumn Budget 2024 and is now law. Finance Act 2026 received Royal Assent on 18 March 2026. Further regulations and HMRC guidance will set out the detailed reporting process, but the key date is clear: the new treatment applies to deaths on or after 6 April 2027. If someone dies before then, the current rules apply even if the pension is paid later.
Who could be affected?
Most estates will still pay no IHT. The nil-rate band remains £325,000, with a residence nil-rate band of up to £175,000 where a home passes to children or grandchildren. Both are frozen until April 2031. However, adding pension wealth may push an estate above £2 million, where the residence nil-rate band begins to taper. Unmarried partners should take particular care: unlike spouses and civil partners, they do not benefit from the spouse exemption.
What remains outside the estate?
Important exclusions include qualifying death-in-service benefits, dependants’ scheme pensions, joint-life annuities and charity lump-sum death benefits. Existing IHT exemptions also continue, including benefits passing to a spouse, civil partner or registered charity. The death-in-service exclusion is limited: a lump sum linked to a former job will not normally qualify where the deceased was only a deferred member.
Income tax and executors
Where the member dies aged 75 or over, the beneficiary may also pay income tax on pension death benefits. From 2027, both IHT and income tax can apply, although the amount used to pay IHT is removed from the beneficiary’s taxable income. Executors will need to identify every pension, obtain date-of-death valuations, establish beneficiaries and report the information to HMRC. Tax is due six months after the end of the month of death, and interest may then run.
What should you do now?
Review your expression of wish or nomination form and consider whether the traditional approach of drawing a pension last still suits your circumstances. Regular gifts from surplus income remain exempt, and charitable gifts can help secure the reduced 36% IHT rate where at least 10% of the net estate passes to charity. Most importantly, read your will and pension nominations together: otherwise, a pension may pass to one person while the tax burden falls on an estate inherited by someone else.
If you have substantial pension savings, or expect to act as an executor, contact us now to understand the likely impact and consider appropriate planning before April 2027.
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