Pensions and inheritance tax from April 2027: what is changing

The short answer: if someone dies on or after 6 April 2027, most of their unused pension money and pension death benefits are counted towards inheritance tax, sitting alongside their house, savings and everything else. It was announced at the Autumn 2024 Budget and became law in Finance Act 2026. This guide keeps two things apart — what the law now settles, and the process rules HMRC is still finalising.

What counts, and what does not

Most of it counts. For a pot of money, the unused fund is included. For a defined-benefit scheme, what counts is any lump sum death benefit and any guaranteed payments still due — a dependant's scheme pension is excluded only if the benefit may only be paid in excluded forms. Choosing it where an ordinary dependants' annuity was available does not meet that condition (IHTA 1984 s.150A(6); HMRC technical note 2, “Dependants’ scheme pensions”). The old point — that the provider chose who got the money, so it stayed out of the estate — no longer keeps it out. A handful of benefits are excluded outright, and some recipients are exempt. The rules call the included value notional pension property:

The spouse, civil-partner and charity exemptions are just the ordinary inheritance-tax exemptions applied to pensions — so a pension left to a surviving spouse stays exempt, exactly as the family home would.

Who has to deal with it

The people running the estate — the personal representatives — report and pay the inheritance tax on the unused pension. That was not the original plan. The government first proposed making the pension scheme handle it, then confirmed in July 2025 that the personal representatives would carry it instead.

There is a practical snag: the money is held by the pension scheme, not sitting in the estate’s bank account. So the rules let the personal representatives protect the estate while the bill is worked out. If they think inheritance tax is likely, they can tell the scheme to hold back up to 50% of each non-exempt beneficiary’s share. That hold-back ends as soon as it is withdrawn, the tax and interest are paid, or 15 months after the end of the month of death — whichever comes first. It only reserves the money; paying the tax is a separate step.

How many estates it affects

The government has published its own estimate of the scale.

These are HMRC’s own figures, from its tax information and impact note— not ours. The change sits on top of the existing income-tax rules on death benefits — the age-75 line — which it does not replace. The income-tax side, and the lump sum and death benefit allowance, are covered in pensions, death benefits and inheritance tax and the LSDBA explainer. Use the Pension IHT calculator to compare the estate with and without one evidenced provider pension value.

Finance Act 2026 sets the charge for deaths on or after 6 April 2027. HMRC’s 27 August technical note confirms that the information-sharing regulations were laid on 15 July 2026, while further guidance remains pending. For planning and illustration only; this explainer states the rules and is not financial, tax or estate-planning advice.

Finance Act 2026 (new IHTA 1984 s.150A) · HMRC “Inheritance Tax on pensions” technical note (updated 29 May 2026) · PTM073010 (income tax on lump sum death benefits)