Pensions and Inheritance Tax

A landmark reform announced at the Autumn Budget 2024 will fundamentally alter how pension wealth is treated on death. Here is what you need to know and what you can do about it.

For decades, unused pension funds have sat outside the inheritance tax (IHT) net. Pensions were not just a vehicle for retirement income, for many clients, they had become the most tax-efficient asset to leave behind. That changes on 6 April 2027.

From that date, most unused pension funds and pension death benefits will be included in a deceased person's estate for IHT purposes. Legislated through the Finance Act 2026, which received Royal Assent on 18 March 2026, this is the most consequential shift in estate planning for pension savers in a generation.

If you hold significant pension wealth alongside other assets, your IHT position has almost certainly changed.

What is actually changing?

Under the current rules, most pension schemes operate on a discretionary basis: trustees decide who receives death benefits, which means the funds fall outside the deceased's estate for IHT. This has made pensions an extremely attractive way to accumulate and transfer wealth tax-efficiently, particularly since the abolition of the lifetime allowance in 2023.

The government's stated rationale for the change is clear: pension schemes have been increasingly used as a tax planning vehicle to pass on wealth, rather than to fund retirement. The reform removes that advantage.

From 6 April 2027, the change applies regardless of whether scheme trustees retain discretion over payment. The pension fund is in the estate for purposes of IHT.

Download our guide

We have produced a comprehensive guide exploring all aspects of this change in detail, from the technical mechanics of how IHT will be calculated and collected, to the planning strategies available and the practical steps clients and their advisors should be taking now.

Download our guide: Pensions and Inheritance Tax: A complete guide to the 2027

Inside the guide

• How IHT will be calculated and collected on pension death benefits.
• The income tax interaction and double taxation relief.
• Planning strategies to mitigate your exposure.
• Practical steps to take before 6 April 2027.

Act now

The April 2027 start date applies to deaths on or after 6 April 2027. That means planning undertaken today can still make a difference. Gifts made now, nominations updated, and drawdown strategies reconsidered all have the potential to change your IHT position materially before the new rules bite.

Those most immediately affected are those with large defined contribution pots who have been preserving their pension as a legacy asset, but the effects extend well beyond the most obvious scenarios. Anyone with a combined estate (including pensions) approaching or exceeding £325,000 individually, or £650,000 as a couple, deserves a fresh review

Sources:

• HMRC: Inheritance Tax on pensions: Technical note — published 11 May 2026.
• HMRC: Inheritance Tax: Unused pension funds and death benefits — published 26 November 2025.
• Finance Act 2026, Royal Assent 18 March 2026.