When do pensions become subject to inheritance tax?

For deaths on or after 6 April 2027. From that date most unused pension funds and pension death benefits are included in the value of the deceased’s estate for inheritance tax, alongside their other assets.

Who pays the inheritance tax on a pension from 2027?

The deceased’s personal representatives are liable for reporting and paying it. The government originally consulted on making pension scheme administrators liable but confirmed in July 2025 that personal representatives would bear the responsibility.

What pension death benefits are exempt from the 2027 inheritance-tax change?

Death-in-service benefits from a registered pension scheme and any qualifying dependants’ scheme pension are excluded; the latter exclusion applies regardless of the arrangement type. Benefits passing to a surviving spouse, civil partner or registered charity keep the existing inheritance-tax exemptions.

Does the 2027 change replace the income tax on inherited pensions?

No. It adds an inheritance-tax charge on the unused fund; it does not repeal the existing income-tax treatment of death benefits (which turns on whether the member died before or after age 75). Both sets of rules are in point from 2027.

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Pensions and inheritance tax from April 2027: what is changing

From 6 April 2027, most unused pension money is counted towards inheritance tax. Here is what falls in, who has to deal with it, and the numbers HMRC published.

Based on Finance Act 2026 and HMRC’s May 2026 technical note “Inheritance Tax on pensions” (deaths on or after 6 April 2027).

6 min read · Last reviewed 20 Jul 2026

— In short

For deaths on or after 6 April 2027, most unused pension money and death benefits count towards inheritance tax, joining the rest of the estate. The people running the estate — the personal representatives — report and pay it. While the bill is worked out, the scheme can be told to hold back up to 50% of the affected benefits. Death-in-service benefits, dependants' pensions and money left to an exempt recipient stay outside it.

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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

Almost all of it counts. Unused pension funds and death benefits that are not specifically excluded are pulled in, whether the pension is a pot of money or a defined-benefit scheme. 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:

Scope of the 6 April 2027 change (Finance Act 2026 / HMRC technical note)

Most unused funds and non-excluded death benefits: In scope as notional property
Death-in-service benefits from a registered scheme: Excluded
Qualifying dependants’ scheme pensions (any arrangement): Excluded
Benefits to a surviving spouse or civil partner: Exempt (existing IHT rule)
Benefits to a registered charity: Exempt (existing IHT rule)

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.

Official impact estimates, 2027–28 (gov.uk)

Estates with inheritable pension wealth: ~213,000
Newly liable to inheritance tax: ~10,500
Paying more inheritance tax than before: ~38,500
Average increase in IHT liability (with pensions included): ~£34,000

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 technical note explains the process expected so far, but the information-sharing regulations and final guidance still need a later check. For planning and illustration only; this explainer states the rules and is not financial, tax or estate-planning advice.

Finance Act 2026 · HMRC “Inheritance Tax on pensions” technical note (updated 29 May 2026) · PTM173000 (income tax on death benefits)

Common questions

When do pensions become subject to inheritance tax?: For deaths on or after 6 April 2027. From that date most unused pension funds and pension death benefits are included in the value of the deceased’s estate for inheritance tax, alongside their other assets.
Who pays the inheritance tax on a pension from 2027?: The deceased’s personal representatives are liable for reporting and paying it. The government originally consulted on making pension scheme administrators liable but confirmed in July 2025 that personal representatives would bear the responsibility.
What pension death benefits are exempt from the 2027 inheritance-tax change?: Death-in-service benefits from a registered pension scheme and any qualifying dependants’ scheme pension are excluded; the latter exclusion applies regardless of the arrangement type. Benefits passing to a surviving spouse, civil partner or registered charity keep the existing inheritance-tax exemptions.
Does the 2027 change replace the income tax on inherited pensions?: No. It adds an inheritance-tax charge on the unused fund; it does not repeal the existing income-tax treatment of death benefits (which turns on whether the member died before or after age 75). Both sets of rules are in point from 2027.

Sources & grounding

Effective date and scope: Finance Act 2026 and HMRC's May 2026 technical note confirm that most unused pension funds and death benefits enter the estate for deaths on or after 6 April 2027. https://www.gov.uk/government/publications/inheritance-tax-on-pensions-technical-note/technical-note-inheritance-tax-on-pensions · https://www.legislation.gov.uk/ukpga/2026/11/contents/enacted
Primary sources:https://www.gov.uk/government/publications/inheritance-tax-on-pensions-technical-note/technical-note-inheritance-tax-on-pensions https://www.legislation.gov.uk/ukpga/2026/11/contents/enacted
Liability: personal representatives report and pay; a beneficiary becomes jointly and severally liable for tax attributable to notional pension property once it vests. A scheme is normally not liable unless it fails to act on a valid notice.
Exclusions/exemptions: death-in-service benefits and any qualifying dependants’ scheme pension (regardless of arrangement type) are among the excluded benefits; spouse/civil-partner and charity exemptions are maintained.
Withholding safeguard: a valid notice can reserve up to 50% of each affected entitlement and ends on withdrawal, payment of the relevant tax and interest, or 15 months after the end of the month of death. Withholding is separate from the payment routes.
Impact statistics (2027–28): ~213,000 estates with inheritable pension wealth; ~10,500 newly liable to IHT; ~38,500 paying more; average IHT liability up ~£34,000. Source: HMRC's 26 November 2025 tax information and impact note. https://www.gov.uk/government/publications/inheritance-tax-unused-pension-funds-and-death-benefits/inheritance-tax-unused-pension-funds-and-death-benefits
Primary sources:https://www.gov.uk/government/publications/inheritance-tax-unused-pension-funds-and-death-benefits/inheritance-tax-unused-pension-funds-and-death-benefits

For planning and illustration purposes only. Verify all inputs against source documents. This explainer does not constitute financial or tax advice.

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