What is changing for pensions and Inheritance Tax in 2027?

From 6 April 2027, most unused defined contribution pension pots will be included in your estate for Inheritance Tax, reversing the current exemption.

Will my pension really be taxed twice?

Potentially. If you die after 75, the pot may face 40% IHT in the estate and Income Tax for beneficiaries on withdrawals — though it depends on your full estate.

When exactly does the change take effect?

6 April 2027, the start of the 2027/28 tax year.

Who pays the IHT on my pension?

Under the planned scheme, pension administrators will pay the IHT directly to HMRC from the fund before beneficiaries receive the balance.

Does the change affect death-in-service benefits?

Death-in-service benefits from registered pension schemes are expected to remain outside IHT, though final detail is being confirmed.

What happens if I die before 75?

Beneficiaries currently inherit DC pots free of Income Tax if you die before 75; from April 2027 the pot may still face IHT within the estate.

What happens if I die after 75?

Beneficiaries pay Income Tax at their marginal rate on withdrawals; from April 2027 the pot may also face 40% IHT — the double-tax risk.

Should I spend my pension before other savings now?

For estates likely to be IHT-liable, drawing and using pension funds before ISAs may now be more efficient — the opposite of the old approach.

Can I leave my pension to my spouse?

Yes, and the spousal exemption means no IHT on death to a spouse or civil partner, deferring any charge until the second death.

Does gifting help with this change?

Yes. Gifting from surplus income, or making gifts that survive seven years, can reduce the estate exposed to IHT.

What is "normal expenditure out of income"?

An IHT exemption for regular gifts made from surplus income that don’t reduce your standard of living — increasingly valuable after 2027.

Will defined benefit pensions be affected?

The change focuses on unused defined contribution funds; defined benefit death benefits often work differently. Check your scheme’s rules.

Should I take more tax-free cash now?

Possibly, as part of a wider plan, but taking large sums can create other taxes or reduce retirement income. Get advice before acting.

Can life insurance help?

A whole-of-life policy written in trust can provide funds to pay a known IHT bill outside your estate — a common planning tool.

Does the nil-rate band still apply to pensions?

Yes — the pension forms part of the estate, so available nil-rate bands apply before the 40% rate bites.

How do I find out my likely exposure?

Add your pension to your other estate assets, deduct available nil-rate bands, and apply 40% to the excess. A specialist can model it precisely.

Is the legislation final?

The direction is confirmed but some implementation detail is still being finalised by HMRC. Plans should stay flexible.

Will beneficiaries receive less?

Yes, where IHT applies — administrators pay HMRC first, so beneficiaries receive the net amount.

Does this affect annuities?

Annuity death benefits depend on the annuity terms (e.g. guarantees or value protection). The change mainly targets unused DC funds.

Should I change my beneficiary nominations?

Review them in light of the change — for example, nominating a spouse defers IHT. Keep nominations up to date with your provider.

Can a bypass trust still help?

Some schemes used bypass trusts; the post-2027 treatment is still being clarified, so seek up-to-date specialist advice.

Does this interact with the £2.5m APR/BPR cap?

They are separate changes but both affect estate planning. Together they make holistic, professional planning more important.

How soon should I act?

Before April 2027. Reviewing withdrawal order, gifting and nominations now gives the most flexibility.

Where can I get help?

Because this affects your whole estate, tailored advice is wise. We can match you with a verified estate-planning specialist for free.

Pension IHT (Death Tax)

Q: How many estates will be affected?

HMRC estimates around 10,500 estates will become liable for IHT for the first time in 2027/28 as a result.

Pension & IHT
death tax.

From April 2027, most unused pension pots will be subject to Inheritance Tax as part of your estate — a major reversal. The double-tax risk, the new HMRC payment scheme, who is affected and the planning options, explained clearly.

✓ Verified 2026/27✓ HMRC sources✓ Free calculators

What is changing in April 2027

Today, most defined contribution pension pots sit outside your estate for Inheritance Tax — a major reason pensions are used in estate planning. From 6 April 2027, most unused pension funds will be brought into your estate and potentially taxed at 40% IHT, alongside the existing Income Tax rules for beneficiaries.

The double-tax risk

If you die after 75, beneficiaries already pay Income Tax at their marginal rate on what they draw. Adding 40% IHT on the pot means the same money can be taxed twice.

Worked example

£500,000 unused pot, death after 75, higher-rate beneficiary (illustrative)

Pension pot in estate£500,000

IHT at 40% (if above nil-rate bands)£200,000

Remaining pot£300,000

Income Tax at 40% on drawdown£120,000

Effective tax on the pot£320,000 (64%)

Illustrative only — actual outcomes depend on the full estate, available nil-rate bands and the beneficiary’s tax position. Take advice before acting.

Who is affected

HMRC estimates around 10,500 estates will become liable for IHT for the first time in 2027/28 because of this change. Anyone with a substantial pension pot relative to their other assets, and whose total estate may exceed the nil-rate bands, should review their position now.

The new HMRC payment scheme

📌 How tax will be paid

Under the planned scheme, pension administrators pay the IHT directly to HMRC from the fund before passing the balance to beneficiaries. Death-in-service benefits from registered schemes are expected to remain outside IHT. Final legislative detail is still being confirmed.

Planning options to consider

Spend the pension first — the old "draw ISAs before pensions" orthodoxy is reversed for estates likely to be IHT-liable.
Increase gifting from surplus income — the "normal expenditure out of income" exemption becomes more valuable.
Review beneficiary nominations — spousal exemption still applies, so leaving a pension to a spouse defers IHT.
Whole-of-life cover in trust — can fund a known future IHT bill outside the estate.
Reassess drawdown timing — drawing and gifting income earlier may reduce the pot that falls into the estate.

🔗 Official sources & specialist help

Track the change via HMRC and GOV.UK pension and IHT pages. Because this interacts with your whole estate, we strongly recommend tailored advice — get matched with an estate-planning specialist for free.

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Pension & IHT
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Pension & IHT

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