Pensions and inheritance tax from April 2027: what's changing and what to do

For years, pensions have been one of the most tax-efficient ways to pass wealth to the next generation. That’s changing. From 6 April 2027, most unused pension funds and death benefits will be included in the value of your estate for inheritance tax.

This is general information, not financial or tax advice. Estate planning is personal, and a regulated adviser can help with your situation.

What’s changing

Until now, most defined contribution pensions sat outside your estate for inheritance tax. From April 2027, unused pension pots and death benefits will be treated as part of the deceased’s estate and potentially taxed at 40% above the tax-free allowances.

It’s now law: the Finance Act 2026 received Royal Assent on 18 March 2026, putting the main changes in place for deaths on or after 6 April 2027.

What stays the same

• Spouses and civil partners: pension assets left to a surviving spouse or civil partner remain exempt.
• The allowances: each person has a £325,000 nil-rate band, plus up to £175,000 residence nil-rate band when a home passes to direct descendants. Unused allowances can pass to a surviving spouse, so a couple can potentially pass on up to £1 million tax-free. These allowances are frozen until April 2031.
• Income tax after 75: if you die aged 75 or over, beneficiaries still pay income tax on money they withdraw from an inherited pension, on top of any inheritance tax.

Who is likely to be affected?

The government estimates that of around 213,000 estates including pension wealth in 2027–28, about 10,500 will face an inheritance tax charge. So most families won’t pay, but the change matters most for:

• People with large pension pots who planned to leave them untouched
• Single, widowed or divorced people, who don’t have the spouse exemption
• Families whose home plus pensions takes them above the combined allowances

Steps to take now

1. Add up your estate, including property, savings, investments, life insurance not written in trust, and now your pensions.
2. Update your expression of wish (your pension beneficiary nomination) with every scheme. It’s quick, and more important than ever.
3. Review the order you draw your money. Many retirement plans were built around keeping pensions untouched as long as possible. In some cases, drawing from pensions sooner and keeping ISAs or other investments for later could lead to better outcomes.
4. Understand gifting rules. You can give away £3,000 a year tax-free, plus regular gifts from surplus income that don’t affect your standard of living. Larger gifts may be free of inheritance tax if you live seven years.
5. Write or update your will, and consider whether life insurance written in trust could help your family cover a tax bill.
6. Get advice if your estate is near or above the thresholds.

Good to know: Don’t rush to empty your pension. Large withdrawals are taxed as income and could push you into a higher band. The goal is a balanced plan, not a panic move.

The short version

From 6 April 2027, most unused pensions will count towards your estate for inheritance tax, now confirmed in law. Pensions left to a spouse or civil partner stay exempt, and most estates still won’t pay. If you have a large pension or estate, update your beneficiaries, review how you’ll draw your money in retirement, and consider advice. For the pension basics, read pensions explained.