Pensions and Inheritance Tax From April 2027
Written and reviewed by the Pension Tax Accountants editorial team. Last reviewed 29 July 2026.
Pensions have long sat largely outside inheritance tax, which is part of why they matter in estate planning. That position changes from 6 April 2027, when most unused pension funds and death benefits are brought into the estate for inheritance tax.
The change is law, not a proposal. It was enacted by the Finance Act 2026, which received Royal Assent on 18 March 2026, and it takes effect for deaths on or after 6 April 2027. The detailed reporting and payment rules are still being finalised.
This guide explains the tax position. It is not estate planning advice, and anything touching how a pension is arranged or invested is regulated financial advice for an FCA authorised adviser.
The Current Inheritance Tax Position
Under the rules in force before 6 April 2027, death benefits paid from a discretionary pension scheme are generally outside the deceased's estate for inheritance tax. That is because the scheme trustees, not the member, decide who receives them.
This is the treatment that has made pensions useful for passing on wealth, and it is exactly the feature the coming change is designed to remove.
The Age 75 Income Tax Rule
Separate from inheritance tax, an income tax rule turns on the age at death. If the member dies before age 75, defined contribution death benefits are usually paid free of income tax, within the lump sum and death benefit allowance and a two-year window. If the member dies at 75 or over, the beneficiary pays income tax at their marginal rate on what they draw.
Income tax and inheritance tax are separate charges, so from 6 April 2027 a pension could face both. The link to the lump sum allowances matters, because the tax-free treatment on early death is measured against the same LSDBA.
The Change From 6 April 2027
From 6 April 2027, most unused pension funds and death benefits are included in the estate for inheritance tax. The change was made by the Finance Act 2026 and applies to deaths on or after that date.
There is a carve-out. Death in service benefits paid from a registered pension scheme are excluded from the estate, so those remain outside inheritance tax.
Reporting and Paying the Tax
Responsibility for reporting and paying the inheritance tax falls on the personal representatives of the estate. HMRC covers the treatment of death benefits in its Pensions Tax Manual at PTM073010.
The precise reporting and payment mechanics are still being finalised, so the process for 2027 onward is not yet settled in full. Following that detail as it lands is part of keeping estates compliant.
Where Estate Planning Meets Regulated Advice
We deal with the tax: how the current rules apply, how the 2027 change works, and what the personal representatives have to report. Decisions about how to arrange a pension in light of the change are regulated financial advice for an FCA authorised adviser.
If you want the tax position mapped out, that starts from the pension tax work we do rather than from a product recommendation.