Pensions and inheritance tax from April 2027

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For years, pensions have sat outside your estate for inheritance tax. That changes for deaths on or after 6 April 2027 — now settled law, and for many families the most significant planning shift in a decade.

What is changing for pensions and inheritance tax in April 2027?

Under the current rules, money left in a pension can usually be passed on without inheritance tax. From April 2027, most unused pension funds and pension death benefits are included in the value of your estate. This was enacted by the Finance Act 2026, which received Royal Assent on 18 March 2026 and amended the Inheritance Tax Act 1984. It applies to deaths on or after 6 April 2027.

For anyone who has deliberately left their pension untouched to pass it on, that reverses the logic entirely.

The principal charge is settled law. Some of the machinery around it is not: the regulations governing how personal representatives and pension scheme administrators exchange information, and HMRC's supporting guidance and tools, were still being finalised through 2026. Expect the reporting detail to firm up closer to April 2027, and treat anything you read about process — as opposed to the charge itself — as provisional. HMRC's technical note on Inheritance Tax on pensions is the authoritative source.

If you would rather review your own position than read the detail, start here →

Which pension death benefits stay outside inheritance tax?

Several pension death benefits sit outside the charge. "Most" is doing real work in that sentence — HMRC's own wording is "most unused pension funds and pension death benefits", and several things sit outside the charge:

• Dependants' scheme pensions.
• Death in service benefits, where you were still in the relevant employment immediately before death.
• Charity lump sum death benefits.
• A dependant's or nominee's annuity bought together with your own lifetime annuity.
• Some trivial commutation lump sum death benefits.

Separately, anything passing to a spouse or civil partner normally carries the usual inheritance tax exemption, as it does today. So a pension left to a husband or wife is in a very different position from one left to an adult child.

Which of these applies to you depends on your scheme and your circumstances, so it is worth checking rather than assuming.

Who is most affected by the April 2027 pension IHT change?

You are most likely to be affected if your total estate — property, savings, investments and now pensions — is worth more than the allowances available to you. For 2026/27 those are £325,000 per person, plus up to £175,000 where a main home passes to children or grandchildren.

A couple can potentially pass on up to £1 million between them. Above that, the excess is generally taxed at 40%.

Should you withdraw money from your pension before April 2027?

The instinct is to strip money out of the pension quickly. That is rarely the right answer. Large withdrawals can push you into a higher income tax band, and money taken out of a pension and left in a bank account is fully inside your estate anyway.

There is also a reasonable chance the detail changes before it takes effect. Sensible planning prepares for the rules as drafted without betting everything on them.

What should you consider before the 2027 rules take effect?

• The order you draw income. Which pot you spend first can materially change the tax paid over a retirement.
• Regular gifting. Gifts from surplus income can be immediately outside your estate if properly documented.
• Whether your allowances are being used. Many people do not realise the residence nil-rate band is gradually reduced above a £2 million estate.
• Protection. A policy written in trust can cover an expected bill rather than forcing a sale.

What is the practical next step before April 2027?

If your estate is likely to be above the allowances, it is worth modelling the position before April 2027 rather than after. The value of planning here is not clever structures — it is time.

Sources: the April 2027 change is described in HM Treasury and HMRC’s policy paper Inheritance Tax: unused pension funds and death benefits. Thresholds and the 40% rate are from GOV.UK, How Inheritance Tax works.

This article is general information, not personal advice. Tax treatment depends on individual circumstances and may change in future. The Financial Conduct Authority does not regulate inheritance tax planning, trusts or will writing. The information contained within this article was accurate at the date of publication and is subject to change. Reviewed by Bright Wealth before publication.