Pensions have been the one large asset a person could leave outside their estate, and from April 2027 they are not. The change is enacted, it turns on the date of death, and it leaves the spouse exemption intact. This page sets out what is caught, what is excluded, who pays, and how the income tax that already applies sits alongside it.
What changes, and when
The government’s policy paper says it will bring most unused pension funds and death benefits into the scope of Inheritance Tax from 6 April 2027 (GOV.UK, Inheritance Tax: unused pension funds and death benefits, checked 1 November 2026). The Finance Act 2026 makes it law, applying the amendments to deaths on or after 6 April 2027 (Finance Act 2026, section 71, checked 1 November 2026).
The date that matters is the death, not when the pension was opened or whether it was ever drawn. Someone who dies on 5 April 2027 is under the present rules; someone who dies the next day is under the new ones.
The present rule, until then
Today most pension death benefits escape the estate because the scheme decides who gets them. GOV.UK says you do not usually pay Inheritance Tax on a lump sum because payment is usually discretionary, meaning the pension provider can choose whether to pay it to you, and to ask the provider whether the payment was discretionary (GOV.UK, Tax on a private pension you inherit, checked 1 November 2026).
The government’s paper describes the effect: at present individuals can accumulate unlimited tax-free savings in their pension, draw on other means to fund retirement, and leave the unused pension to be inherited without any Inheritance Tax charge (GOV.UK, Inheritance Tax — unused pension funds and death benefits, checked 1 November 2026). That is what ends.
What is excluded
Not every pension benefit is caught. The paper says the change will not apply to exempt benefits, funds under £1,000 or continuing annuities, and that all death-in-service benefits payable from a registered pension scheme are excluded from the estate (GOV.UK, Inheritance Tax: unused pension funds and death benefits, checked 1 November 2026).
Its detailed note adds that dependants’ scheme pensions from a defined benefit arrangement, or a collective money purchase arrangement, are excluded and will not be in scope (GOV.UK, Inheritance Tax — unused pension funds and death benefits, checked 1 November 2026). A widow’s pension from a final salary scheme is untouched. So is an annuity already in payment, which stops at death and leaves no fund.
The spouse exemption stays
A pension left to a husband, wife or civil partner is exempt, as everything else left to them is. The paper says the existing principles providing exemption for death benefits passing to a surviving spouse or civil partner, and to registered charities, will be maintained (GOV.UK, Inheritance Tax — unused pension funds and death benefits, checked 1 November 2026).
The Act does that by extending section 18 of the Inheritance Tax Act to what it calls the member’s notional pension property, the pension’s value treated as part of the estate for this purpose, so that the value passing to the spouse under the scheme is treated as exempt (Finance Act 2026, section 69, checked 1 November 2026). The exemption is for a spouse or civil partner, and carries the same limit as any other transfer where the survivor is not a long-term UK resident; a partner who was never married is on our hub page under the unmarried-partner gap.
Who is liable, and the 15-month hold
The executors carry it. The paper says personal representatives will be liable for reporting and paying any Inheritance Tax due on unused pension funds and death benefits (GOV.UK, Inheritance Tax: unused pension funds and death benefits, checked 1 November 2026), and the Act adds them to the persons liable (Finance Act 2026, section 67, checked 1 November 2026).
The money to pay it can come from the scheme. The paper says that if they reasonably expect tax to be due, personal representatives can direct the scheme administrator to withhold 50% of the taxable benefits for up to 15 months from the date of death. The scheme then pays the tax to HMRC before releasing the rest. The Act’s withholding notice lapses 15 months after the end of the month of death (Finance Act 2026, section 68, checked 1 November 2026). The paper adds that in many cases beneficiaries will not be affected because the personal representative will not ask the scheme to withhold.
Executors who have HMRC’s clearance are protected. The paper says they will be discharged from liability for pensions discovered after they have received clearance, and the Act limits that to cases where the omission was not careless (Finance Act 2026, section 67, checked 1 November 2026).
Income tax as well
The new tax sits on top of one that already exists. GOV.UK says most lump sums, within the lump sum and death benefit allowance, and flexi-access drawdown or annuity payments are tax-free where the pension owner died under 75, and taxed as the beneficiary’s income where the owner was 75 or over (GOV.UK, Tax on a private pension you inherit, checked 1 November 2026).
Under-75 funds have a clock too: GOV.UK says income tax is due on the whole lump sum if it is paid more than two years after the provider is told of the death. From April 2027 an estate whose member died at 75 or over can face Inheritance Tax on the fund and the beneficiary income tax on what they then draw, and the paper says the law will let schemes and executors exchange the information both taxes need (GOV.UK, Inheritance Tax — unused pension funds and death benefits, checked 1 November 2026).
How many estates, and by how much
The government’s own estimate is in the paper: of around 213,000 estates with inheritable pension wealth in 2027 to 2028, 10,500 will have an Inheritance Tax liability where previously they would not. Around 38,500 will pay more than before. The average liability is expected to rise by around £34,000 where pension assets are included (GOV.UK, Inheritance Tax — unused pension funds and death benefits, checked 1 November 2026).
The same paper says 79% of Inheritance Tax is paid by estates of people aged 75 or over. Whether an estate is among the 10,500 depends on the thresholds on our hub page, and on whether the pension goes to a spouse.
What this page does not do
It does not say whether to draw a pension down before 2027, before 75, or at all. That is a decision about your own money and its tax, and our tax on pensions hub sets out what drawing it costs in income tax now, including the emergency tax on a first withdrawal and the loss of the £60,000 contribution allowance.
GOV.UK says that if you are over 50 you can book a free Pension Wise appointment to talk about your pension options (GOV.UK, Personal pensions, checked 1 November 2026), and a regulated adviser is the person to weigh Inheritance Tax against income tax for a particular family. Where the estate will be paid out of a scheme, our paying the bill page covers the deadline and the interest that the 15-month hold is designed to meet.