Inheritance tax on pensions from 6 April 2027: what heirs could receive

From 6 April 2027, most unused pension funds and pension death benefits count towards your estate for inheritance tax. The calculator projects your pots year by year, so you can see the inheritance tax at different ages of death, not just a single snapshot.

Worked example: someone aged 66 with £800,000 in a pension and an ISA, a home worth £500,000 and £60,000 of other assets, spending £30,000 a year. Your money lasts to 95, with £583,390 left.

What changes

In the government's words, the change "will take effect in respect of deaths on or after 6 April 2027", and "Personal Representatives will be liable for reporting and paying any Inheritance Tax due on unused pension funds and pension death benefits." Some older articles still say pension schemes pay it: that was an earlier proposal.

The government estimates that around 10,500 estates in 2027 to 2028 will have an inheritance tax bill where they previously would not, and about 38,500 will pay more.

What's not included

• Spouses and civil partners. Pensions passing to a surviving husband, wife or civil partner remain exempt.
• Death in service benefits from a registered pension scheme.
• Dependants' scheme pensions from a defined benefit (final salary) scheme.
• Charities remain exempt too.

The worked example at 85

If death happened at 85, the estate would be £1,266,306, including £706,306 of pensions. Inheritance tax would be £325,332. Under the rules before April 2027, with the pensions outside the estate, it would be £42,810.

Income tax for heirs after 75

If death is at 75 or over, whoever inherits a pension also pays income tax on what they draw from it, at their own rate. In the example, on the pensions left after inheritance tax that's about £104,969 at 20%, or £209,938 at 40%. Combined with 40% inheritance tax, the total comes to 64% for a higher-rate heir and 67% for an additional-rate heir. Before 75, inherited pensions are usually free of income tax.

Which pot you spend first

This example spends the ISA before the pension. Spending the pension first instead, the estate at 85 would be £1,228,585 and inheritance tax £310,244. The calculator's year-by-year table shows how each order changes your pots, your income tax and your estate.

Paying the tax

Personal representatives can ask pension schemes to hold back half of the benefits that may be subject to inheritance tax for up to 15 months after the death, while the tax is worked out and paid.

Couples

In the calculator's couples mode, the first death passes everything to the survivor without inheritance tax, and the table shows the second death using both people's tax-free bands.