Your pension could contribute to an Inheritance Tax bill if you die on or after 6 April 2027. Most unused pension funds and pension death benefits will be considered alongside your property, savings and other assets. Not every pension will be taxed, but families who have preserved pension wealth to pass it on should review whether that strategy still works.
For many years, pensions have offered more than an income in retirement. People with substantial estates have often spent other savings first, leaving their pension untouched in the hope that more of it would eventually reach their children.
That sense of security is about to change. Under the Finance Act 2026, most unused pension funds and pension death benefits will be brought into the estate for Inheritance Tax purposes. This could affect families whose existing plans were built around pensions remaining outside the Inheritance Tax calculation.
John-Paul Dennis, Partner & Divisional Director of Private Client at the Jackson Lees Group, explains what these changes mean, how they could affect your estate, and the steps you may wish to consider, ensuring your plans remain effective.
What changes to inheritance tax on pensions are coming in April 2027?
Most unused pension funds and pension death benefits will be included when the value of your estate is calculated.
The change applies where the pension holder dies on or after 6 April 2027, even if the pension was built up many years earlier.
The reforms will principally affect:
- Personal pensions
- Workplace defined contribution pensions
- Self-invested personal pensions (SIPPs)
Some lump sums and death benefits from defined benefit pensions may also fall within the rules.
The following remain outside the new framework:
- Qualifying death-in-service benefits
- Certain dependants' pensions
- Pension benefits passing to a spouse or civil partner
- Pension benefits passing to charity
The date of death is what matters. If someone dies before 6 April 2027, the current rules apply even if the pension is paid to their beneficiaries later.
The HMRC technical note on Inheritance Tax and pensions explains the confirmed framework in more detail.
Is my pension currently exempt from inheritance tax when I die in the UK?
Most defined contribution pensions currently sit outside a person’s estate for Inheritance Tax purposes, although the treatment depends on the pension arrangement.
This has allowed many families to preserve pension wealth while spending savings, investments and other assets during retirement.
Consider someone who owns a valuable home, has invested throughout their working life and has also built a substantial pension. Their estate plan may have assumed that the pension would pass separately, leaving more of the available Inheritance Tax allowances to cover their property and investments.
That assumption may no longer hold after April 2027.
Jackson Lees takes a joined-up approach to estate planning, considering your Will, pension arrangements and wider financial position together. That wider view will become increasingly important because a decision about one asset, may affect what eventually happens to the others.
Will my children have to pay more tax on an inherited pension after the April 2027 changes?
Your children could receive less if adding your pension takes the estate above the available Inheritance Tax allowances.
The effect will depend on:
- The total value of your estate
- Who inherits your assets
- The exemptions and reliefs available
Key allowances currently include:
Nil-rate band: £325,000
Residence nil-rate band: up to £175,000 where a qualifying home passes to direct descendants
Inheritance Tax is generally charged at 40% on the value above the available allowances.
Pension wealth can also push an estate above £2 million, at which point the residence nil-rate band begins to reduce.
This means the pension could:
- Increase the overall taxable value of the estate
- Reduce the residence nil-rate band available to your family
- Lead to a larger Inheritance Tax bill than originally anticipated
If your pension represents a substantial share of what you intend to leave, reviewing the figures now can show whether your family may be affected and whether your existing plan still reflects your intentions.
Can an inherited pension be subject to both inheritance tax and income tax?
Inheritance Tax and Income Tax can both be relevant to an inherited pension, although the same money should not simply be taxed twice in full.
The Income Tax treatment depends partly on the pension arrangement, the pension holder’s age at death and how the beneficiary takes the benefits.
HMRC explains that when Inheritance Tax has been paid in relation to pension benefits, the corresponding amount should not also count towards the beneficiary’s taxable pension income.
The way this adjustment works may depend on how the tax was paid and how the beneficiary accesses the pension.
The interaction between the two taxes is still important.
Decisions about withdrawals, gifts or beneficiaries should therefore be considered alongside retirement needs, rather than being driven by the headline Inheritance Tax rate alone.
Do executors have to include pension savings in the estate for inheritance tax from April 2027?
Executors and other personal representatives will have additional responsibilities under the new rules.
A personal representative is the person legally responsible for administering an estate, either as an executor named in a Will or an administrator where there is no Will.
They will need to identify the deceased’s pension arrangements, contact the providers and obtain the relevant values at the date of death.
Where several pensions are involved, this may add time and complexity to the administration of the estate.
A pension scheme may also be asked to retain part of a non-exempt beneficiary’s entitlement while the tax position is resolved. For families, the practical consequence is that some pension benefits may not be available immediately after a death.
Anyone appointed as an executor should therefore know what pensions exist and where the relevant records are kept.
Clear information can make an already difficult responsibility more manageable.
What happens to my pension when I die if my partner and I are not married?
An unmarried partner does not automatically receive the Inheritance Tax exemption available to a spouse or civil partner.
Couples may have lived together for many years and shared every aspect of their finances yet face a markedly different tax position because they are not married or in a civil partnership.
A pension nomination can ask the scheme to consider your partner as a beneficiary, but it does not create the spouse exemption.
Your Will, pension nominations and ownership of the family home should be considered together if your partner would depend on those assets after your death.
Should I withdraw money from my pension before April 2027 to reduce inheritance tax?
You should not withdraw pension funds solely because the Inheritance Tax treatment is changing.
Taking money out may create an immediate Income Tax charge, reduce the amount available throughout retirement and leave the withdrawn funds inside your estate if you do not spend or give them away.
The issue can be particularly significant for business owners. A director may have used a SIPP or small self-administered scheme, known as a SSAS, to hold commercial premises or other long-term assets.
If that pension becomes part of the Inheritance Tax calculation, the family may face a liability linked to an asset that cannot quickly be turned into cash.
Business Property Relief and Agricultural Property Relief do not apply to the pension value simply because qualifying assets are held within the pension.
This can turn what appears to be a tax calculation into a practical succession problem, particularly where retaining a property or business asset matters to the next generation.
Any decision to change pension withdrawals should be coordinated with regulated financial advice. Protecting your family’s inheritance remains important, but not at the expense of the income and security you may need later in life.
Why is it important to update my pension nomination form before the April 2027 pension tax changes?
You should review your pension nomination if it no longer reflects the people you want to benefit.
Marriage, divorce, bereavement and changes within your family can all leave an older expression of wishes out of step with your present intentions.
The new tax treatment does not automatically mean the pension will be distributed under your Will. Scheme rules and trustee discretion can still determine who receives the benefits, so your nomination and Will should support the same overall plan.
A practical review should cover:
- whether your Will still reflects your wishes;
- whether each pension nomination is current;
- how your pension fits within the total value of your estate;
- whether your retirement and succession plans remain aligned.
These documents should not be reviewed in isolation. A small inconsistency can have significant consequences when substantial pension wealth or several beneficiaries are involved.
When should I get legal advice about inheritance tax on my pension and estate planning?
It is sensible to seek legal advice if your pension forms a substantial part of your wealth, your estate may exceed the available allowances, or your pension holds commercial property or other business assets.
Advice may also be valuable if you are unmarried, have beneficiaries with different needs or have agreed to act as an executor.
How can the Jackson Lees Group help me plan for inheritance tax changes affecting my pension?
Many people are only now discovering that plans made several years ago rely on tax assumptions that will soon change. Our Inheritance Tax Planning service can help you consider your pension alongside your Will, property, investments and wider family arrangements.
Jackson Lees has supported clients across Merseyside for more than 180 years. Our Wills, Trusts and Probate team takes the time to understand what you want to protect and who you want to provide for before considering the available options.
There is still an opportunity to review your position before 6 April 2027. If you are concerned about what the pension reforms could mean for your family or business, Please give us a call, request a callback or make an enquiry to see how we can help.