How pension Inheritance Tax works from April 2027
Under the rules confirmed by HMRC, unused pension funds and most death benefits are added to the value of your estate when you die on or after 6 April 2027. Your personal representatives report the pension to HMRC alongside the rest of your estate, and any Inheritance Tax due is apportioned across your assets in proportion to their value.
| Allowance | 2026/27 amount |
|---|---|
| Nil-rate band (everyone) | £325,000 |
| Residence nil-rate band (home to descendants) | up to £175,000 |
| Rate above the allowances | 40% |
The residence nil-rate band starts to taper away once the estate is worth more than £2 million, losing £1 for every £2 above that. Transfers between spouses and civil partners — including pensions — remain exempt, and unused nil-rate bands can pass to a surviving spouse.
What's out of scope
Not everything is caught. Death-in-service benefits paid because you were employed, dependants' scheme pensions, joint-life annuities and lump sums paid to charity stay outside the Inheritance Tax net. Anything left to a spouse or civil partner is also exempt.
Pension Inheritance Tax FAQs
When exactly does this start?
The rules apply to deaths on or after 6 April 2027. If someone dies before that date, the current rules apply — pensions generally stay outside the estate — regardless of when the money is actually paid out.
Are pensions left to my spouse taxed?
No. Pensions and other assets passing to a surviving spouse or civil partner remain exempt from Inheritance Tax, and any nil-rate band you don't use can transfer to them for use on the second death.
Why can the effective rate be over 60%?
For deaths at 75 or over, the pension is first reduced by 40% Inheritance Tax, then your beneficiary pays Income Tax at their own rate when they draw what's left. The two charges stack, so a higher-rate beneficiary can lose roughly two-thirds of the pot.
Who reports and pays the tax?
Your personal representatives (executors) are responsible for reporting the pension to HMRC and paying the Inheritance Tax due. Pension scheme administrators and beneficiaries can become jointly liable in some circumstances. This is complex — professional advice is worthwhile for larger estates.