Pensions and Inheritance Tax from April 2027
The biggest Inheritance Tax change in years is already law, and it starts on 6 April 2027. From that date, most unused pension funds and pension death benefits count as part of the estate for Inheritance Tax, for deaths on or after that date. Until now they have usually sat outside the estate entirely. This guide explains what counts, what stays outside, and who has to report and pay.
In short
From 6 April 2027, most unused pension funds and pension death benefits will be brought within the value of the estate for Inheritance Tax, for deaths on or after that date. Death-in-service benefits and dependants' scheme pensions stay outside, and transfers to a spouse or civil partner stay exempt. Personal representatives must report the pension value and pay any tax due. HMRC estimates around 10,500 estates will become liable for the first time and around 38,500 will pay more in 2027–28.
What changes on 6 April 2027
From 6 April 2027, most unused pension funds and pension death benefits will be brought within the value of a deceased person's estate for Inheritance Tax purposes. The Finance Act 2026, which received Royal Assent on 18 March 2026, amended the Inheritance Tax Act 1984, the Finance Act 2004 and the Income Tax (Earnings and Pensions) Act 2003 to bring the reform into effect for deaths on or after 6 April 2027. If the pension scheme member dies before 6 April 2027, the current rules apply even if pension benefits are paid to beneficiaries after that date.
What stays outside
Not everything pension-related is brought in. Death-in-service benefits — amounts payable because the member was in employment or other work of a particular description immediately before death — are treated as excluded benefits. A dependants' scheme pension paid to a dependant after a member's death is also an excluded benefit, as are joint-life and dependants' annuities purchased together with a lifetime annuity. Payments to certain beneficiaries are exempt from Inheritance Tax, such as transfers between spouses and civil partners (where long-term UK residents) — but personal representatives must still include the pension value in the account and claim the exemption.
Who reports and pays
Personal representatives are responsible for reporting and liable for paying any Inheritance Tax due on pension property. Pension scheme administrators are not normally liable, unless they fail to action a valid withholding or payment notice. Tax payable on pension property is due as normal at the end of the sixth month after the date of death, and late-payment interest accrues after that.
How many estates are affected
HMRC's own estimates, from its policy paper "Inheritance Tax on unused pension funds and death benefits" of 21 July 2025: of around 213,000 estates with inheritable pension wealth, around 10,500 will become liable for Inheritance Tax for the first time in 2027–28, and around 38,500 will pay more than they would have. The average Inheritance Tax liability rises by around £34,000 for affected estates. These are static estimates that take no account of behavioural change, so they describe a maximum rather than a forecast.
Still being finalised
Budget 2026, on 28 October 2026, did not reverse or postpone the April 2027 change. The GOV.UK technical note carries the banner "Content does not reflect changes in Budget 2026", and full HMRC guidance and tools are due in spring 2027. The operational detail is still being finalised — this guide states the law as it stands and points readers to GOV.UK for the current position.
Sources: GOV.UK, Technical note: Inheritance Tax on pensions; HMRC policy paper "Inheritance Tax on unused pension funds and death benefits", 21 July 2025 (estimates, cited by title and date).