From April 2027, the government is making important changes to how inheritance tax (IHT) applies to pensions. These changes could affect how much of your pension wealth is passed on to your loved ones - and how quickly they receive it. Here’s what you need to know.
Currently, if you pass away with money left in your pension, it usually isn’t counted as part of your estate for IHT purposes. But from 6 April 2027, that’s set to change.
Under new rules, any unused pension funds and death benefits will be included in your estate when calculating IHT - even if your pension scheme has discretion over who receives the money. This means more estates could face a tax bill, and some may pay more than they would have before.
The government estimates that around 10,500 estates will now have to pay IHT when they wouldn’t have before - and about 38,500 estates will pay more tax than they would have under the old rules. On average, the IHT bill could rise by around £34,000 when pension assets are included.
However, if your pension goes to your spouse, civil partner, or a registered charity, it will still be exempt from IHT — just like it is now.
The people responsible for managing your estate - known as legal personal representatives (LPRs) - will be in charge of reporting and paying any IHT due on your pension. If they can’t pay it straight away, the people inheriting your pension (the beneficiaries) may need to help.
Once the beneficiaries are identified, they’ll become jointly responsible for paying any IHT due on the pension benefits they receive.
There will be a few ways to pay the IHT:
If the tax is paid through the pension provider, it won’t count as income - so there’s no extra Income Tax to worry about. And if someone ends up paying too much Income Tax, HMRC will offer a refund.
If you have a pension and want to make sure your loved ones are protected, now is a good time to review your estate plans. These changes could affect how your pension is taxed — and how much your beneficiaries receive.
It’s also worth checking who your pension beneficiaries are and making sure your wishes are up to date.
Understanding tax rules can be tricky - but you don’t have to figure it out alone. Speak to your financial adviser to see how these changes might affect you. If you don’t have one, we can help you.
Planning ahead today could make a big difference for your loved ones tomorrow.
Source: HMRC Policy paper: Inheritance Tax on unused pension funds and death benefits, published 21 July 2025.
