Pensions and Inheritance Tax from April 2027

What changes, and when?

The change is enacted in Finance Act 2026. The relevant date is the pension member's death: a death before 6 April 2027 remains subject to the earlier rules, even when benefits are paid later. Until then, discretionary pension death benefits are usually outside the estate for Inheritance Tax.

Being included in an estate does not mean an entire pension automatically suffers 40% tax. The calculation considers the estate, available allowances, exemptions and reliefs together. Nor does inclusion mean a will automatically controls who receives the pension; the scheme's beneficiary rules still apply.

Which benefits are excluded?

Qualifying death-in-service benefits are excluded. This does not exempt every pension belonging to somebody who dies while working: ordinary pension savings or benefits payable regardless of current employment must be considered separately. Qualifying dependants' scheme pensions and certain joint-life annuities are also excluded. The pension provider must identify the actual benefit type.

Spouses, civil partners and tax bands

The spouse or civil partner exemption normally applies to pension death benefits passing to them. Cross-border residence circumstances can limit that exemption. An unmarried partner does not qualify simply because the couple lived together.

For 2026/27, the ordinary nil-rate band is £325,000. A residence nil-rate band of up to £175,000 may apply where a qualifying home passes to direct descendants. It is conditional and tapers for estates above £2 million. Unused bands may be transferable between spouses or civil partners. A £1 million allowance for a couple is therefore a possible combined result, not an automatic entitlement.

The standard 40% rate applies to taxable value above the available bands. The reduced charitable rate and other reliefs have separate conditions. Adding pension value can also affect eligibility for the residence allowance.

Income Tax is a separate calculation

Beneficiary Income Tax rules continue alongside Inheritance Tax. Age at death, payment type and other conditions affect Income Tax; death before 75 does not create an Inheritance Tax exemption. The legislation provides an adjustment so pension amounts used to bear the relevant Inheritance Tax charge are not also subject to Income Tax on that same amount.

Who handles the information?

Personal representatives lead the reporting and payment process, with information from pension providers. HMRC's August 2026 technical note explains the information-sharing regulations and payment process. Further operational guidance is expected before implementation. Keeping provider details and benefit statements together makes the position easier to establish; a general guide cannot calculate an individual estate's liability.