Inheritance Tax on Pensions UK: Complete Guide 2026

Pensions can be one of the most valuable assets a person builds during their lifetime, but the rules surrounding pensions and Inheritance Tax can be complicated. The position is also changing significantly.

As of September 2026, many pension death benefits can still pass to beneficiaries outside the deceased person’s estate for Inheritance Tax purposes. However, for deaths on or after 6 April 2027, most unused pension funds and many pension death benefits will be brought within the deceased’s estate when calculating Inheritance Tax.^[1]

This change has already been legislated for through the Finance Act 2026. It means people who previously assumed that their pension would sit completely outside their estate may need to reconsider their estate planning.^[2]

There are, however, important exceptions. Death-in-service benefits from registered pension schemes will remain outside the scope of the new rules, as will certain dependant pensions and some joint-life annuity benefits.

In this guide, we explain how Inheritance Tax applies to the main types of pension found in the UK, including personal pensions, workplace pensions, defined benefit schemes, the State Pension, Civil Service pensions and other public-sector pension schemes. We also look at death benefits, death-in-service payments and the important difference between the rules applying before and after 6 April 2027.

This guide reflects the law and HMRC information available as of September 2026. Pension and Inheritance Tax rules can depend heavily on the terms of an individual scheme and a person’s wider estate, so professional advice should be obtained for individual circumstances.

Does Inheritance Tax apply to pensions?

Sometimes. The answer depends on the type of pension, how the scheme operates, the benefit being paid and, increasingly, the date on which the pension holder dies.

For deaths before 6 April 2027, most discretionary pension death benefits do not normally form part of the estate for Inheritance Tax. A discretionary payment is one where the pension trustees or provider ultimately decide who receives the benefit, even if the member has completed an expression of wishes or nomination form.^[3]

There are already exceptions. A pension benefit that is payable to the deceased’s estate or personal representatives as an automatic legal entitlement can form part of the estate. HMRC also recognises circumstances in which pension contributions, transfers or changes made while someone is seriously ill can create an Inheritance Tax issue.^[4]

For deaths on or after 6 April 2027, the distinction between discretionary and non-discretionary pension schemes will become much less important for Inheritance Tax. Most unused pension funds and relevant pension death benefits will be treated as part of the deceased person’s estate.^[1]

The key change from 6 April 2027

The Finance Act 2026 introduced a new section 150A into the Inheritance Tax Act 1984. It creates the concept of “notional pension property”. In simple terms, certain unused pension funds and death benefits will be treated as though the pension holder beneficially owned them immediately before death when calculating Inheritance Tax.^[2]

Pension position	Death before 6 April 2027	Death on or after 6 April 2027
Unused defined contribution pension with discretionary death benefits	Usually outside the estate for IHT	Usually included when calculating the estate
Defined benefit lump sum death benefit	Depends on scheme rules and whether payment is discretionary	Many lump sum death benefits will be included
Registered pension death-in-service benefit	Often outside the estate where discretionary	Specifically excluded from the new IHT rules
Qualifying dependant’s scheme pension	Depends on existing rules	Excluded from the new pension IHT charge
Single-life pension or annuity that simply ends on death	No remaining pension asset to inherit	Normally no remaining pension property to include
Guaranteed or protected pension payments continuing after death	Depends on the arrangement	Some guaranteed lump sums or continuation benefits may be included
State Pension	No pension pot to include	No pension pot to include

Importantly, the 2027 rules apply according to the date of death. If somebody dies before 6 April 2027, the existing rules apply even if the pension provider does not make payment until after 6 April 2027.^[1]

What are the Inheritance Tax rates in 2026?

The standard Inheritance Tax rate is 40%. It is normally charged on the taxable part of an estate above the available allowances and exemptions.^[5]

Inheritance Tax rule	2026 position
Standard nil-rate band	£325,000
Standard IHT rate on death	40%
Reduced rate where the qualifying charitable giving conditions are met	36%
Residence nil-rate band	Up to £175,000
Residence nil-rate band taper starts	Estate value above £2 million
Potential allowance for an individual meeting the full residence nil-rate band conditions	Up to £500,000
Potential combined allowances for qualifying married couples or civil partners	Up to £1 million

The £325,000 nil-rate band and £175,000 residence nil-rate band are currently set to remain at those levels until 5 April 2031.^[5]

The residence nil-rate band does not simply apply because somebody owned a home. There are conditions relating to the property and who inherits it, and the allowance is gradually withdrawn for estates worth more than £2 million.

This becomes particularly relevant from April 2027 because including a large unused pension could increase the value of an estate for IHT purposes. Families who previously considered only property, savings and investments may therefore find that pension wealth becomes an important part of the calculation.

Are pensions inherited by a husband, wife or civil partner subject to Inheritance Tax?

Transfers between spouses and civil partners are generally exempt from Inheritance Tax, subject to the applicable UK residence rules.

That exemption remains important after April 2027. A pension may technically be included when calculating the deceased person’s estate, but if the relevant pension benefits pass to a qualifying surviving spouse or civil partner, the spouse or civil partner exemption can mean that no IHT is payable on that transfer.^[1]

This does not mean pension nominations can be ignored. Pension trustees may still have discretion over the recipient, and it is important that pension nominations, expressions of wishes, wills and the wider estate plan are considered together.

Types of pensions in the UK and how Inheritance Tax applies

There are thousands of individual pension schemes in the UK, each with its own detailed rules. However, virtually all mainstream pension arrangements fall into one or more of the categories below.

Defined contribution pensions

A defined contribution pension, sometimes called a money purchase pension, contains a pot of money built from contributions and investment growth.

This category includes many workplace pensions as well as personal pensions.

If money remains in a defined contribution pension when the member dies, it can often be passed to one or more beneficiaries as a lump sum, beneficiary drawdown fund or inherited annuity, depending on the scheme.

Before 6 April 2027, unused defined contribution funds are usually outside the estate where the pension provider has discretion over the recipient.

From 6 April 2027, the value of unused pension funds that can or must be used to provide death benefits will generally be treated as notional pension property and brought into the IHT calculation.^[1]

Personal pensions

Personal pensions are pensions taken out directly with a pension provider rather than being linked solely to an employer. Most modern personal pensions are defined contribution schemes.

The same broad IHT rules therefore apply. Under the rules applying before April 2027, discretionary death benefits will commonly sit outside the estate. From April 2027, most remaining funds will be brought within the estate calculation.

Self-Invested Personal Pensions

A Self-Invested Personal Pension, commonly known as a SIPP, is a type of personal pension offering greater investment flexibility.

A SIPP is not given a separate exemption from the new rules. The value remaining in a SIPP that is available to provide benefits following the member’s death will generally be treated in the same way as other defined contribution pension wealth from 6 April 2027.

This could be particularly significant where a SIPP contains a substantial investment portfolio, commercial property or other assets which have grown considerably over time.

Stakeholder pensions

Stakeholder pensions are another form of defined contribution personal pension. Although they have specific regulatory features, the IHT position broadly follows the rules for other defined contribution pensions.

Workplace defined contribution pensions

Many employees are now enrolled into defined contribution workplace schemes under automatic enrolment rules.

These include master trusts, employer occupational schemes and arrangements such as NEST. The fact that the pension was created through automatic enrolment does not provide a separate IHT exemption.

Unused funds will generally come within the new rules from April 2027 unless a particular benefit falls within one of the statutory exclusions.

Defined benefit pensions

Defined benefit pensions promise a retirement income calculated according to the scheme rules rather than simply providing an investment pot.

They include traditional final salary schemes and modern career average schemes.

A defined benefit pension itself normally stops or changes following the member’s death. However, the scheme may provide lump sum death benefits, guaranteed pension payments or pensions for surviving spouses, partners and children.

From April 2027, certain lump sum death benefits under defined benefit schemes can form part of the member’s notional pension property. HMRC’s legislation specifically provides a valuation mechanism for defined benefit arrangements.^[2]

However, a qualifying dependant’s scheme pension is an excluded benefit under the new rules. This is important for many public-sector and traditional employer pension schemes where the main survivor benefit is an ongoing pension for a husband, wife, civil partner or other qualifying dependant.

Final salary pensions

A final salary pension is a form of defined benefit pension where retirement benefits are normally linked to salary and length of service.

There is not usually a pension “pot” belonging to the member in the same way as a SIPP or personal pension. Instead, it is necessary to examine what benefits become payable under the rules when the member dies.

A spouse’s pension may receive different IHT treatment from a lump sum guarantee or death grant. The individual scheme rules therefore matter.

Career average pensions

Career Average Revalued Earnings pensions, often shortened to CARE schemes, are also defined benefit pensions.

Many modern public service schemes, including the Civil Service alpha scheme and Police Pension Scheme 2015, operate using career average benefits.

The same principle applies: the IHT treatment depends on the actual death benefit created by the scheme rather than simply the name of the pension.

Hybrid pensions

Some schemes combine defined benefit and defined contribution elements. Each part may need to be considered separately.

HMRC’s 2026 technical guidance confirms that where a scheme contains both defined benefit and money purchase arrangements, the different arrangements should be valued separately before their values are combined for IHT reporting.^[6]

Cash balance pensions

Cash balance arrangements promise a particular capital amount rather than a conventional retirement income or simply the value of invested contributions.

The 2027 legislation is drafted widely enough to capture property that can reasonably be expected to provide a death benefit even where it is not held in an individually identified pension pot.

Collective money purchase pensions

Collective money purchase schemes, sometimes described as collective defined contribution pensions, pool investment and longevity risk between members.

The new rules specifically account for collective money purchase arrangements. Qualifying dependant’s scheme pensions can still fall within the excluded benefit rules.

Small Self-Administered Schemes

A Small Self-Administered Scheme, usually known as a SSAS, is an occupational pension arrangement often used by company directors, family businesses and small groups of employees.

The fact that members may have significant control over the scheme’s investments does not create a general IHT exemption. Remaining pension property and relevant death benefits must be considered under the same statutory rules applying to other registered pensions.^[7]

Additional Voluntary Contributions

Additional Voluntary Contributions, or AVCs, allow members of occupational pension schemes to build additional retirement benefits. Free Standing Additional Voluntary Contributions, known as FSAVCs, are separate arrangements used for a similar purpose.

AVCs are frequently defined contribution funds even where the main pension is a defined benefit scheme. They can therefore have a different IHT treatment from the main scheme benefit.

Section 32 buyout policies

Section 32 policies, also known as buyout policies or deferred annuity contracts, were commonly used to transfer rights out of occupational pension schemes into an insurance contract.

Older pension products do not automatically escape the IHT rules. The contract and the death benefits available under it must be reviewed individually.

Retirement annuity contracts

Retirement annuity contracts, sometimes known as section 226 pensions, pre-date modern personal pensions but many remain in existence.

Again, the IHT treatment depends on the benefits available following the member’s death and the terms of the contract.

Flexi-access drawdown pensions

With flexi-access drawdown, pension money remains invested while the member takes withdrawals when required.

The remaining fund can be substantial at death. Under the current rules it can often pass outside the estate where the provider has discretion.

From April 2027, remaining drawdown funds will normally form part of the notional pension property calculation.

Older capped drawdown arrangements

Some people continue to hold older capped drawdown arrangements established before pension freedoms were introduced. Remaining funds can still produce death benefits and will need to be considered under the same IHT principles.

Annuities

An annuity uses pension money to purchase a guaranteed income. Its IHT treatment depends greatly on the type of annuity purchased.

A single-life annuity that simply ends when the individual dies will normally leave no pension capital to inherit.

A joint-life annuity may continue paying income to a surviving spouse or another person. Under the 2027 rules, certain dependant or nominee annuities purchased alongside the original lifetime annuity are excluded benefits.^[1]

An annuity with a guarantee period may continue making payments for a set period after death. Certain guarantee or continuation payments can be brought into the notional pension property calculation.

Similarly, annuity protection or value protection can result in a lump sum being paid after death, which requires separate consideration.

State Pension and Inheritance Tax

The State Pension is fundamentally different from a private pension. There is no personal investment pot sitting in the individual’s estate.

As a result, a person’s ordinary entitlement to the State Pension is not a pension fund that can be inherited and subjected to IHT.

However, some surviving husbands, wives and civil partners can inherit additional State Pension rights under transitional rules. For example, certain people can inherit part of a deceased spouse or civil partner’s Additional State Pension or protected payment, depending on dates of birth, State Pension age and the date of the marriage or civil partnership.^[8]

There are also historic rules involving deferred State Pension.

Any State Pension already owed to the deceased can create a different issue. Where pension arrears were legally due at death, the right to receive those arrears may be an asset of the estate. This should not be confused with inheriting the person’s future State Pension entitlement.

Inheritance Tax on Civil Service pensions

Civil Service pension arrangements include the current alpha defined benefit scheme together with legacy schemes such as classic, classic plus, premium and nuvos. The Civil Service also offers the partnership defined contribution arrangement.

The alpha scheme can provide both a lump sum and pensions for eligible dependants following death in service. Civil Service Pensions states that the lump sum is paid at the discretion of the Scheme Manager, normally taking the member’s nomination into account.^[9]

For an active alpha member, the lump sum is calculated by comparing two calculations and paying the higher figure. One calculation begins with twice the member’s final pay, while the other is based on five times the pension built up, subject to the scheme’s detailed rules.^[9]

Under the rules taking effect from April 2027, a qualifying Civil Service death-in-service benefit will remain outside the new IHT charge because registered pension scheme death-in-service benefits are expressly excluded.

This does not mean every payment from a Civil Service pension will be exempt. A lump sum payable after somebody has left the Civil Service, for example, may instead be a death-in-deferment benefit. HMRC has confirmed that most lump sum death benefits following the death of a deferred member will normally be within the new IHT rules from April 2027.^[6]

A qualifying dependant’s scheme pension can, however, be an excluded benefit.

The partnership pension is a defined contribution arrangement, so any remaining pension fund should generally be considered under the defined contribution rules described earlier.

Inheritance Tax on NHS pensions

The NHS Pension Scheme includes the 1995 Section, 2008 Section and 2015 Scheme. These are defined benefit arrangements rather than conventional individual investment pots.

Depending on the member’s circumstances, the NHS scheme may provide a lump sum on death together with pensions for surviving partners and dependent children.^[10]

For example, NHSBSA states that where somebody dies while an active member, a lump sum linked to pensionable or relevant earnings can be payable, with the precise calculation depending on the section of the scheme.^[10]

Historically, the IHT position for some public-sector schemes has been different from many private discretionary schemes. HMRC has specifically used NHS and judicial schemes as examples of schemes containing non-discretionary arrangements that may already fall within an estate under existing rules.

From April 2027, the broader statutory pension IHT regime will apply. However, genuine death-in-service benefits meeting the statutory definition will be excluded, as will qualifying dependant’s scheme pensions.

Inheritance Tax on Teachers’ Pensions

The Teachers’ Pension Scheme can provide death grants together with pensions for eligible adult beneficiaries and children.

For members of the career average scheme who die in service, Teachers’ Pensions currently states that the death grant is three times the member’s final full-time equivalent salary.^[11]

A member can make a death grant nomination, although entitlement depends on the rules of the scheme.

For IHT purposes after April 2027, the important distinction will again be between a qualifying death-in-service benefit, which is excluded, and other lump sums such as some benefits payable after leaving service or following retirement, which may fall within the new regime.

Inheritance Tax on Local Government Pension Scheme benefits

The Local Government Pension Scheme, or LGPS, is another major public-sector defined benefit scheme.

For an active member in England and Wales, the scheme currently provides a death grant of three times annual pay. Survivor pensions can also be payable.^[12]

The scheme can also pay death grants following the death of deferred members and, in certain circumstances, pensioners. These payments can be calculated differently depending on when the member left or retired.

This distinction becomes particularly important after April 2027. A death grant arising solely because someone died while actively employed can fall within the death-in-service exclusion. A lump sum from an older deferred LGPS entitlement will not normally qualify for that exclusion simply because the person happened to be working somewhere else when they died.

Armed Forces pensions

The main Armed Forces pension arrangements include AFPS 75, AFPS 05 and AFPS 15.

They can provide benefits for surviving spouses, civil partners, qualifying partners and children. Death in service can also result in a lump sum. Under AFPS 15, for example, official Ministry of Defence information states that qualifying death-in-service arrangements can include a lump sum alongside a survivor’s pension.^[13]

As with the other public-service schemes, the new IHT legislation should not be read as meaning every Armed Forces death benefit becomes taxable from 2027. A genuine registered-scheme death-in-service payment can be excluded, while other death benefits need to be considered according to their nature.

Police pensions

Police officers may hold benefits under the Police Pension Scheme 1987, New Police Pension Scheme 2006 or Police Pension Scheme 2015.

The 2015 scheme is a career average defined benefit pension. It provides retirement income alongside survivor benefits and a lump sum following death in service. Current government guidance states that an active member can qualify for a death-in-service lump sum of three times annual pensionable pay, together with pensions for qualifying dependants.^[14]

The death-in-service lump sum can therefore benefit from the specific exclusion introduced for April 2027, provided it meets the statutory conditions. Other pension death benefits need to be assessed separately.

Firefighters’ pensions

Firefighters may have rights under the Firefighters’ Pension Scheme 1992, 2006 Scheme or 2015 Scheme.

The schemes can provide a lump sum following death in service, survivor pensions and certain guarantee payments following retirement.

For example, the 2015 scheme provides a lump sum following death while an active member and can provide ongoing benefits for eligible surviving partners and children.

Again, a death-in-service payment is treated differently from a pension guarantee or lump sum becoming payable after the member has already retired.

Judicial and other statutory public service pensions

Judicial pension schemes and other statutory public service schemes can have their own detailed payment rules.

This is an area where assuming that all public-sector pensions are treated identically can cause problems. HMRC has historically referred to certain NHS and judicial arrangements as examples of non-discretionary pension schemes, meaning benefits can already fall within an estate under the rules applying before April 2027.

From April 2027, the new legislation largely removes the old distinction between discretionary and non-discretionary arrangements for the pension benefits falling within its scope.

What is the difference between a death benefit and a death-in-service benefit?

This distinction will become especially important from April 2027.

A pension death benefit is a broad term. It can include an unused pension pot, a death grant, a guarantee payment, an annuity protection lump sum or another benefit triggered by the member’s death.

A death-in-service benefit has a much narrower meaning. Under the new legislation, it is essentially a benefit that becomes payable because the pension member was in the relevant employment or work immediately before death and which would not have been payable in the same form if they were not in that employment.^[2]

HMRC has confirmed that death-in-service benefits meeting those conditions will be excluded from the new IHT rules. This can include benefits paid as a lump sum, pension income or another form of benefit.

However, simply dying while employed does not automatically make every pension payment a death-in-service benefit. A lump sum from a pension connected to an earlier job, where the person had become a deferred member, will generally not satisfy the exclusion.^[6]

What happens if you die after leaving employment but before taking the pension?

This is commonly known as death in deferment.

A deferred defined benefit pension may pay a lump sum and a pension to eligible dependants. A deferred defined contribution pension may still contain the member’s full invested pension fund.

HMRC’s August 2026 guidance confirms that, from April 2027, most unused pension funds and lump sum death benefits arising after the death of a deferred member will fall within the new IHT rules.

A qualifying dependant’s scheme pension can still be excluded.^[6]

What happens to a pension if someone dies before age 75?

The age of 75 is particularly important for Income Tax, although it does not provide a general exemption from the new Inheritance Tax rules.

Under current pension tax rules, many lump sum death benefits following a death before age 75 can be paid without Income Tax provided the relevant conditions are satisfied and the payment falls within the deceased person’s available lump sum and death benefit allowance.^[3]

The standard lump sum and death benefit allowance for the 2026/27 tax year is £1,073,100, although individual protection and previous use of pension allowances can change the amount available.

A tax-free lump sum death benefit may also become taxable if it is not dealt with within the relevant two-year period after the pension scheme becomes aware of the death.

From April 2027, therefore, a pension benefit could be within the IHT calculation even where the beneficiary does not pay Income Tax on receiving it.

What happens if someone dies aged 75 or over?

Where the pension member dies aged 75 or over, inherited pension payments are generally subject to Income Tax in the hands of the beneficiary, usually at their marginal rate.^[3]

From April 2027, the same pension wealth could also be taken into account for Inheritance Tax.

This has led to concern about beneficiaries potentially facing both IHT and Income Tax. The Finance Act 2026 therefore contains provisions intended to prevent Income Tax being charged on the portion of pension benefits effectively used to bear the IHT liability.

HMRC explains that where Inheritance Tax has been paid in relation to a pension death benefit, the corresponding portion does not count towards the beneficiary’s taxable pension income. The remaining taxable benefit can still be subject to Income Tax.^[1]

Worked example: defined contribution pension before and after April 2027

Suppose David is unmarried and dies aged 70. For simplicity, assume no residence nil-rate band or other exemption is available.

He owns assets worth £400,000 outside his pension and has £300,000 remaining in a discretionary defined contribution pension which he wants his adult daughter to receive.

If David dies before 6 April 2027

If the £300,000 pension death benefit is discretionary, it will normally sit outside David’s estate for IHT.

The taxable estate is therefore £400,000. After the £325,000 nil-rate band, £75,000 is subject to IHT at 40%, producing an IHT bill of £30,000.

If David dies on or after 6 April 2027

The £300,000 unused pension is generally brought into the IHT calculation.

The estate for IHT purposes becomes £700,000.

After a £325,000 nil-rate band, £375,000 is exposed to IHT at 40%, producing total IHT of £150,000, assuming no other exemptions or reliefs apply.

This simplified example demonstrates why people with substantial pensions may need to look at their pension and their conventional estate together from 2027.

Worked example: pension passing to a spouse

Suppose Sarah dies after April 2027 with a £400,000 pension and £500,000 of other assets.

If both the pension benefits and the other estate pass to her qualifying spouse, the spouse exemption can mean there is no immediate Inheritance Tax despite the pension being included within the new regime.

If some or all of the pension instead passes to adult children, the calculation can be very different.

Worked example: death-in-service benefit

James is an active member of a registered employer pension scheme and dies while still employed.

The scheme provides a £150,000 lump sum solely because he died while in active service.

If the payment satisfies the statutory death-in-service definition, it is an excluded benefit under the April 2027 pension IHT rules.

If James also has £250,000 in an unrelated pension from a previous employer which is payable to beneficiaries following his death, that separate pension does not become a death-in-service benefit merely because James was working when he died. The £250,000 must be assessed separately.

Can an inherited pension be subject to both Inheritance Tax and Income Tax?

Yes, although the interaction is more nuanced than simply applying both taxes to the same gross amount.

From April 2027, the pension may contribute to the deceased person’s IHT calculation. If the person died aged 75 or over, payments subsequently withdrawn by the beneficiary can also be taxable pension income.

Finance Act 2026 contains provisions allowing taxable pension income to be reduced to reflect the IHT burden suffered by the beneficiary. This is intended to prevent Income Tax being imposed on pension money which has effectively been used to settle the IHT attributable to the pension.^[1]

Because the calculation can become complicated where there are several pensions or several beneficiaries, executors and beneficiaries should take advice before distributing or withdrawing significant pension benefits.

Who will be responsible for dealing with pension Inheritance Tax from 2027?

Personal representatives, meaning the executors or administrators dealing with the deceased person’s estate, will have primary responsibility for reporting and paying the Inheritance Tax due on pension property.

HMRC’s latest 2026 rules also require information to pass between personal representatives and pension scheme administrators.

A pension scheme administrator will normally need to provide information about the value of the deceased person’s notional pension property. Under regulations laid in July 2026, the basic information will generally need to be supplied within 28 days after a valid request, subject to the detailed rules where beneficiaries have not yet been determined.^[6]

Where an executor reasonably believes IHT may be due, they will be able to issue a withholding notice requiring a registered pension scheme to temporarily withhold up to 50% of certain pension benefits.

HMRC’s system also provides for a Pensions Direct Payment Scheme. This allows a personal representative or beneficiary, in appropriate circumstances, to instruct the pension scheme administrator to pay IHT directly to HMRC from pension funds rather than forcing the estate or beneficiary to find the money elsewhere.^[1]

Why pension nominations still matter

The fact that pensions are coming within the IHT calculation does not mean pension nominations become irrelevant.

Many pension schemes still operate at the discretion of trustees or scheme managers. An expression of wishes tells them who the member would prefer to receive the death benefits, even though the nomination may not be legally binding.

Who eventually receives the pension can materially affect the IHT position. A pension passing to a qualifying spouse or civil partner can potentially benefit from the spouse exemption, while the same pension passing to an adult child may create an IHT liability.

Pension nominations should therefore be reviewed alongside the will rather than considered in isolation.

Can pension transfers create an Inheritance Tax problem before 2027?

Potentially, yes.

Even under the current rules, HMRC can investigate pension contributions, transfers and changes to pension rights where they represent a lifetime transfer of value.

This is particularly relevant where somebody is already in serious ill health when they move pension funds or make unusually large contributions.

HMRC guidance states that a transfer between pension schemes can create a significant loss to the person’s estate where they are in ill health at the date of transfer. Transfers within two years before death therefore need to be disclosed on the relevant IHT pension forms.^[15]

Similarly, substantial or unusual pension contributions made while somebody is seriously ill may require investigation.

This does not mean an ordinary pension transfer automatically triggers IHT. HMRC notes that where the individual is in normal health, the value transferred for IHT purposes will generally be nominal.

What should executors check when someone with a pension dies?

Executors should identify every pension arrangement held by the deceased, rather than relying only on pensions from their most recent employer.

They should establish whether each arrangement is defined benefit or defined contribution, whether the deceased was active, deferred or retired, whether a lump sum or survivor pension is payable, whether trustees have discretion, who the beneficiaries are and whether any benefit qualifies as a death-in-service or other excluded benefit.

For deaths after April 2027, HMRC expects personal representatives to take reasonable steps to identify all relevant pension schemes because pension values may be needed before the IHT position of the estate can be finalised.^[1]

People planning their estates can make this easier by keeping a clear record of their pension providers, scheme names, policy or membership details and current nominations.

How can ASL Solicitors help with pensions and Inheritance Tax?

At ASL Solicitors, we advise individuals and families on wills, probate and estate planning, including estates involving pension benefits and potential Inheritance Tax liabilities.

The changes taking effect in April 2027 mean it is increasingly important to consider pensions alongside property, savings, investments and other assets rather than treating them as completely separate from the estate.

We can help you review your will and wider estate arrangements, or support executors who need to establish the correct estate value and deal with the administration of an estate following a death.

We are based in Rochdale and provide wills, probate and estate planning services to people in Rochdale, Greater Manchester and surrounding areas.

If you would like to discuss your circumstances, get in touch with ASL Solicitors.

Frequently Asked Questions

Are pensions currently subject to Inheritance Tax in the UK?

Most discretionary pension death benefits are currently outside the deceased person’s estate for Inheritance Tax, but there are exceptions. Benefits payable automatically to the estate or personal representatives may already be included, and pension transfers or contributions made while somebody is seriously ill can also create IHT issues.

When will the new Inheritance Tax rules for pensions start?

The new rules apply where the pension member dies on or after 6 April 2027. If the member dies before that date, the existing rules apply even if the pension benefit is paid later.

Have the 2027 pension Inheritance Tax changes become law?

Yes. The changes were legislated for in the Finance Act 2026, which received Royal Assent on 18 March 2026. Further secondary legislation and HMRC guidance are continuing to be developed ahead of implementation.

What is the Inheritance Tax rate on pensions?

There is no separate pension IHT rate. Where pension wealth forms part of the taxable estate, the normal Inheritance Tax rules apply. The standard rate is 40% on the taxable part of the estate after available allowances, exemptions and reliefs.

Will every pension be subject to Inheritance Tax from April 2027?

No. Most unused pension funds and many death benefits will be brought within the IHT calculation, but there are important exclusions. These include qualifying death-in-service benefits, qualifying dependant’s scheme pensions and certain jointly purchased survivor annuities.

Will death-in-service benefits be subject to Inheritance Tax?

Registered pension scheme death-in-service benefits that meet the statutory definition will be excluded from the new pension IHT rules from 6 April 2027.

Is a Civil Service pension subject to Inheritance Tax?

It depends on the benefit being paid. Civil Service pensions can provide lump sums and dependant pensions. A qualifying death-in-service payment will remain excluded after April 2027, while some lump sums following death in deferment or retirement may fall within the new IHT regime.

Is an NHS pension subject to Inheritance Tax?

The NHS Pension Scheme can provide death lump sums and survivor pensions. Their treatment depends on the nature of the benefit and the member’s circumstances. From April 2027, some lump sum benefits may be included in the IHT calculation, while qualifying death-in-service and dependant pension benefits can be excluded.

Is a Teachers’ Pension subject to Inheritance Tax?

Some Teachers’ Pension death benefits may come within the new rules, but qualifying death-in-service payments are excluded. Survivor pensions can also receive different treatment from lump sum death grants.

Does Inheritance Tax apply to the State Pension?

The State Pension does not contain an individual pension pot, so there is normally no State Pension fund to include in an estate. Some surviving spouses and civil partners can inherit additional State Pension rights under transitional rules. Pension arrears already legally due to the deceased can require separate consideration.

What happens to a SIPP when somebody dies?

A SIPP can usually be passed to pension beneficiaries under the scheme rules. Before April 2027 it is commonly outside the estate where the pension provider has discretion. From 6 April 2027, most unused SIPP funds available to provide death benefits will be included when calculating the estate for IHT.

Does the age of 75 affect Inheritance Tax on a pension?

Age 75 mainly affects the Income Tax treatment of inherited pensions rather than determining whether IHT applies. From April 2027, unused pension wealth can fall within the IHT rules whether the person dies before or after age 75.

Can an inherited pension face both Inheritance Tax and Income Tax?

Potentially. In particular, benefits inherited following a death at age 75 or over can be taxable pension income as well as forming part of the IHT calculation from April 2027. The Finance Act 2026 includes adjustments intended to prevent Income Tax being charged on the portion of pension benefits used to bear the IHT liability.

Are pensions inherited by a spouse subject to Inheritance Tax?

Transfers to qualifying spouses and civil partners are generally exempt from Inheritance Tax, subject to the relevant residence rules. This exemption can continue to apply to pension benefits after the April 2027 reforms.

Should I update my pension nomination before April 2027?

It is sensible to review pension nominations regularly, particularly after marriage, divorce, bereavement or major changes in family circumstances. The person who ultimately receives pension benefits can affect the tax outcome, so nominations should be considered alongside your will and wider estate planning.

This article is intended as general information and does not constitute individual legal, tax, pension or financial advice. Pension scheme rules and personal circumstances vary, and professional advice should be obtained where necessary.