HMRC Pension Inheritance Tax Changes: What Happens From April 2027?

From 6 April 2027, most unused pension funds and certain death benefits will form part of a person’s estate when calculating Inheritance Tax.

This does not mean every inherited pension will automatically face a 40% tax charge.

Whether IHT becomes payable will depend on factors including:

• Total Estate Value: Property, savings, investments, pensions and other assets may all affect the calculation
• Available Allowances: The nil-rate band and residence nil-rate band may reduce the taxable estate
• Beneficiary: Transfers to qualifying spouses, civil partners and charities may be exempt
• Type Of Pension Benefit: Certain pension and death-in-service benefits remain outside the new rules
• Age At Death: This remains important when determining the separate Income Tax treatment of inherited pensions

Last Updated: 12.09.2026

Key HMRC Pension Inheritance Tax Changes At A Glance

Latest HMRC Pension Inheritance Tax Update For 2026

HMRC published further implementation details in August 2026 explaining how the new pension inheritance rules April 2027 are expected to operate in practice.

The additional guidance covers areas such as:

• Pension valuations following death
• Information sharing between pension schemes and executors
• Beneficiary information
• Pension withholding notices
• Direct payment of IHT from pension funds
• Estate clearance procedures

HMRC also estimates that around 213,000 estates with inheritable pension wealth could be affected by the new reporting framework in 2027/28.

Of these, approximately:

These figures do not mean 213,000 estates will suddenly pay IHT. Most estates are still expected to remain outside the tax.

The estimates may also change if pension holders alter withdrawals, gifting or estate-planning strategies before April 2027.

When Do The New Pension Inheritance Tax Rules Start?

The HMRC pension rules 2027 apply to relevant deaths occurring on or after 6 April 2027.

The date of death is what matters.

If someone dies before 6 April 2027, the existing rules will generally continue to apply even if the pension provider does not distribute the death benefits until after the new regime starts.

This creates a clear dividing line:

• Death Before 6 April 2027: Existing pension IHT treatment normally applies
• Death On Or After 6 April 2027: New pension inheritance tax rules generally apply

Families should therefore avoid assuming that the payment date determines which system applies.

Which Pensions Will Be Included In Inheritance Tax From 2027?

Most unused defined contribution pension funds will fall within the new regime.

This can include money that remains untouched inside a pension as well as funds held in flexible drawdown arrangements.

Relevant pension wealth may include:

• Unused defined contribution pension funds
• Remaining pension drawdown funds
• Certain lump sum death benefits
• Certain pension death benefits payable following the member’s death
• Relevant pension assets treated as notional pension property

Defined benefit pensions are different because they usually provide an income rather than leaving behind an individual investment pot. However, particular death benefits connected with these arrangements still need to be assessed according to their specific rules.

What Is Notional Pension Property?

The term notional pension property is increasingly important when discussing inheritance tax on pensions 2027.

Broadly, it refers to relevant pension wealth that is treated for IHT purposes as though the deceased was beneficially entitled to it immediately before death.

The pension scheme still legally holds the assets, but their value can be brought into the deceased person’s estate calculation.

Valuation is generally based on the relevant pension property’s value at the date of death. This means the final amount eventually received by beneficiaries could differ if investments rise or fall during estate administration.

Which Pension Benefits Will Remain Outside The New IHT Rules?

Not every pension-related payment will become subject to the new regime.

Certain benefits are specifically excluded.

These can include qualifying:

• Death-In-Service Benefits: Certain payments connected with employment remain excluded
• Dependants’ Scheme Pensions: Some continuing pension income paid to dependants remains outside the new treatment
• Dependants’ Or Nominees’ Annuities: Certain qualifying annuity benefits remain excluded
• Trivial Commutation Payments: Particular death-benefit payments may remain outside the estate
• State Pension Benefits: There is no transferable pension pot comparable with a defined contribution pension

Benefits passing to qualifying exempt beneficiaries can also receive different treatment.

This means the headline statement that “pensions will be taxed at 40%” is misleading. The pension type, beneficiary and overall estate all matter.

How Will The £325,000 Nil-Rate Band And Residence Nil-Rate Band Apply?

There is no separate 40% pension inheritance tax.

Instead, relevant pension wealth becomes part of the deceased person’s wider estate.

The main IHT thresholds include:

The residence nil-rate band may be available where a qualifying home passes to direct descendants.

Unused allowances can also potentially transfer between spouses and civil partners, meaning some qualifying couples can pass considerably more than £325,000 without IHT.

Why The £2 Million Threshold Matters?

The residence nil-rate band begins to reduce once the estate exceeds £2 million.

It is withdrawn by £1 for every £2 that the estate exceeds the threshold.

This means adding a large unused pension to an estate may create two consequences:

• The estate itself becomes larger
• The available residence nil-rate band could reduce

This interaction may become particularly important for homeowners with substantial pensions, investments and business assets.

How Does The Age 75 Rule Work With Pension Inheritance Tax?

Age 75 remains significant because Income Tax and Inheritance Tax operate separately.

Where someone dies before age 75, many inherited defined contribution pension benefits can currently be paid without Income Tax where the required conditions are satisfied.

Where someone dies aged 75 or older, pension withdrawals made by beneficiaries are generally taxable as income at the beneficiary’s marginal rate.

From April 2027, relevant unused pension wealth may also be included in the estate for IHT.

This means some beneficiaries could encounter both:

• IHT arising through the deceased’s estate
• Income Tax when taxable inherited pension benefits are later withdrawn

However, the two rates should not simply be added together and described as an automatic combined tax charge. The final outcome depends on the benefit type, estate value, age at death and how the beneficiary accesses the pension.

Who Pays Inheritance Tax On An Inherited Pension?

Personal representatives will normally be responsible for dealing with the estate’s IHT obligations.

This usually means executors where there is a valid will or administrators where there is not.

Their responsibilities may include:

• Identifying all pension schemes belonging to the deceased
• Requesting relevant pension valuations
• Establishing whether the estate requires an IHT return
• Calculating tax attributable to pension property
• Coordinating with pension administrators
• Arranging payment to HMRC

A pension inheritance tax beneficiary can also become jointly and severally liable for IHT attributable to pension property once the relevant benefit has vested in them.

The new framework therefore requires closer coordination between beneficiaries, personal representatives and pension schemes.

How Will Executors Deal With Pension Inheritance Tax From 2027?

The new executor pension inheritance tax process introduces specific information-sharing requirements.

A pension scheme will generally have to provide the value or estimated value of relevant pension property within 28 days after receiving a valid request.

Where beneficiaries have not yet been identified, information on how pension wealth will be divided between exempt and non-exempt beneficiaries may need to be provided within the later of:

• The original 28-day period
• 14 days after beneficiaries have been determined

Where only an estimated pension value is initially available, final figures generally need to follow once the accurate valuation becomes known.

These requirements are intended to allow executors to establish the overall estate value before submitting the necessary IHT information.

What Is the 50% Pension Withholding Rule?

A new pension withholding notice is intended to prevent pension benefits being distributed before potential IHT liabilities have been resolved.

Where a personal representative reasonably believes that IHT may be payable on pension property, they can issue a qualifying withholding notice to the pension provider.

The provider may then be required to prevent payments that would result in more than 50% of the relevant beneficiary entitlement being distributed.

This does not mean HMRC automatically takes half of every inherited pension.

The withholding mechanism is intended to preserve sufficient funds while the estate’s IHT position is established.

It does not generally apply to excluded pension benefits or benefits going to exempt beneficiaries.

What Is The Pensions Direct Payment Scheme?

The Pensions Direct Payment Scheme gives executors and beneficiaries another way to deal with pension-related IHT.

Where the conditions are satisfied, a valid payment notice can instruct the pension administrator to pay tax attributable to pension property directly to HMRC.

Key points include:

• The relevant IHT and interest payment must generally be at least £1,000
• Sufficient pension funds must still be available
• A pension administrator normally has 35 days to make payment after receiving a valid notice
• The payment reduces the pension benefits subsequently available to the beneficiary

The measure could be particularly useful where the estate does not have enough readily available cash to settle the tax before pension benefits are distributed.

Should You Withdraw Or Gift Pension Wealth Before April 2027?

The pension inheritance tax changes 2027 may encourage some retirees to reconsider how quickly they use pension savings.

However, withdrawing pension money solely to avoid IHT may produce an unfavourable result.

Pension withdrawals can trigger Income Tax. Once withdrawn funds are held personally as cash or investments, they will generally become ordinary estate assets if they remain owned at death.

Gifting may also form part of estate planning.

Depending on circumstances, relevant options could include:

• Potentially exempt transfers subject to the seven-year rule
• Regular qualifying gifts made from surplus income
• Lifetime gifts within available annual exemptions
• Using retirement income and non-pension assets in a different order

These strategies are not universally suitable. Pension holders should first consider their long-term retirement income, care costs, tax position and financial security.

What Do The Pension IHT Changes Mean For Business Owners And SIPPs?

The reforms could be particularly important for entrepreneurs and company owners using Self-Invested Personal Pensions (SIPPs) or Small Self-Administered Schemes (SSASs).

These pension arrangements can contain assets such as:

• Commercial property
• Business premises
• Company shares
• Investment portfolios
• Certain agricultural assets

Relevant unused SIPP or SSAS wealth can fall within the SIPP inheritance tax 2027 rules.

An important issue is that Business Relief or Agricultural Relief does not automatically apply to notional pension property merely because the underlying pension scheme owns assets that might otherwise qualify for one of those reliefs.

Business owners should therefore consider their pension alongside:

• Company ownership
• Business succession plans
• Commercial property
• Personal investments
• Estate liquidity
• Family wealth-transfer objectives

Moving property or other assets out of a SIPP or SSAS purely to reduce future IHT can create separate tax, pension and transaction consequences.

Will Pension Beneficiary Nominations Still Matter?

Pension beneficiary nominations and expression-of-wish forms remain important after April 2027.

They allow pension trustees and administrators to understand who the member wanted to receive the pension.

However, naming a beneficiary does not automatically remove relevant pension wealth from the IHT calculation.

Pension nominations should therefore be reviewed alongside:

• Wills
• Marriage or divorce
• Births and deaths within the family
• Business succession arrangements
• Wider estate-planning objectives

Keeping old nomination forms in place could also mean pension benefits are directed differently from the member’s current wishes.

What HMRC Has Not Yet Fully Clarified?

Although the main HMRC pension inheritance tax changes have been legislated, not every implementation issue has been finalised.

As of September 2026, additional HMRC guidance is expected on specialist matters including:

• International pension arrangements
• Further interaction between IHT and Income Tax
• Intestacy
• Charitable beneficiaries
• Trusts
• Additional administrative rules

Pension holders should therefore distinguish between the confirmed core reform and areas where detailed guidance is still developing.

What Should Pension Holders Do Before April 2027?

There is no single strategy that will suit every pension holder.

A sensible review could include:

1. Calculate Your Estate Value: Include pensions alongside property, savings, investments and business assets
2. Identify Every Pension: Check workplace pensions, personal pensions, SIPPs, SSASs and drawdown accounts
3. Review Beneficiary Nominations: Ensure they still reflect current intentions
4. Check Available IHT Allowances: Include the nil-rate band, residence nil-rate band and spouse exemptions
5. Review Your Will: Make sure pension planning and estate planning remain aligned
6. Consider Tax Before Withdrawing: A withdrawal made to reduce IHT could create an immediate Income Tax bill
7. Review Business Assets: Business owners should consider pension assets alongside shares and succession plans
8. Consider Regulated Advice: Complex pensions and estates may require specialist financial, tax or legal advice

Conclusion

The HMRC pension inheritance tax changes represent a major shift in how unused retirement wealth will be treated after death.

From 6 April 2027, most unused pension funds and certain pension death benefits will be included within the estate for IHT purposes. Some families could become liable for Inheritance Tax for the first time, while others may face larger estate tax bills.

However, the rules do not create an automatic 40% charge on every pension.

Allowances, exemptions, estate size, pension type, age at death and the identity of beneficiaries all remain important.

With the central reform now confirmed and further HMRC implementation guidance continuing to emerge, pension holders, executors and business owners have good reason to review pension and estate arrangements before April 2027 rather than making rushed withdrawals or transfers.

Frequently Asked Questions

Will All Pensions Be Subject To Inheritance Tax From 2027?

No. Most unused pension funds and relevant pension death benefits will enter the new regime, but certain benefits remain excluded and exemptions can apply.

When Do The New Pension Inheritance Tax Rules Start?

The new rules generally apply where someone dies on or after 6 April 2027.

Will My Spouse Pay Inheritance Tax On My Pension?

Qualifying transfers to a spouse or civil partner can remain exempt from IHT. The pension may still need to be identified during estate administration even where the exemption ultimately removes the tax charge.

What Happens If Someone Dies Before Age 75?

Many inherited pension benefits can potentially be received free of Income Tax where the member dies before 75 and the relevant conditions are met. From April 2027, separate IHT rules may still bring relevant unused pension wealth into the estate.

Can HMRC Withhold 50% Of An Inherited Pension?

A qualifying withholding notice can result in up to 50% of certain pension entitlements being temporarily retained while potential IHT is resolved. It is not an automatic 50% tax.

Should I Withdraw My Pension Before April 2027?

Not automatically. Pension withdrawals can trigger Income Tax, while money retained after withdrawal can still form part of the estate. The decision should be based on the wider retirement and tax position.

Are SIPPs Included In The New Pension IHT Rules?

Yes. Relevant unused pension wealth held through a SIPP can fall within the new rules. Business Relief or Agricultural Relief does not automatically apply merely because qualifying assets sit inside the pension.