For years, an unused pension pot has been one of the most tax-efficient things to leave behind. It sat outside your estate for inheritance tax. From 6 April 2027, that changes.
What changes
For deaths on or after 6 April 2027, most unused pension funds and death benefits count as part of the estate for inheritance tax. They are added to the house, savings and everything else, and taxed at 40% above the allowances. The rule was legislated in the Finance Act 2026, and HMRC has published technical guidance since.
Before the change, many people drew on other savings first and left the pension as the last thing to spend. That advice may no longer work for every family.
Who pays
The executors, called personal representatives in the law, report the pension and pay the tax. That is awkward, because they don't control the pension. The scheme administrator does.
There are protections. Executors can ask a scheme to withhold up to 50% of the taxable benefits for up to 15 months, and to pay inheritance tax directly to HMRC. They can also obtain a clearance from HMRC that discharges them from liability for pension benefits they didn't know about. Commentators expect delays and complications in the early years.
In Scotland, the executor deals with this as part of applying for confirmation. Our guide to inheritance tax thresholds explains why tax is due before confirmation is issued.
What stays exempt
Pensions left to a spouse or civil partner remain exempt for long-term UK residents. So do pensions left to charity. Where the pension passes to children, it now counts.
There is also income tax to consider. Where the member dies at 75 or over, beneficiaries can pay income tax on money they draw from an inherited pension. Combined with inheritance tax, that can take a large share.
What to review now
Start with your nomination forms, often called expression of wish forms. They tell the scheme who you want to receive benefits and they don't follow your will. Check they are current and that they match the rest of your plan.
Then look at the order in which you use your assets. If you have other savings and a large pension, the right order may be different from before. That depends on your tax position and your family, so it needs advice.
Regular gifts out of surplus income are exempt from inheritance tax with no limit, as long as they are regular and leave you able to maintain your standard of living. For people with a pension and a comfortable income, that can be a way to move money out of the estate. See our guide to gifts and the seven-year rule.
A life insurance policy written in trust can also cover an inheritance tax bill without adding to the estate. We explain how in our guide to life insurance in trust.
How we help
Richard goes through your estate with you, including pensions, and arranges the planning with your adviser or accountant and our specialist legal partners. Start with our Inheritance Tax page. It makes sense to look at your position now rather than in April 2027.