Pension Inheritance Tax From April 2027: The 9-Month Checklist

Q: Will my pension be taxed when I die from April 2027?

Possibly, but only if your total estate — now including unused defined contribution pensions — exceeds your inheritance tax allowances. A couple leaving a home to children can still shelter up to £1 million. HMRC estimates around 10,500 estates a year become newly liable because of the change, roughly 1.5% of UK deaths, so most people will still owe nothing. If you die at 75 or older, beneficiaries also pay income tax on what they draw, which can stack to an effective 64–67% on large pots.

Q: Does my spouse pay inheritance tax on my pension from 2027?

No. The spouse and civil partner exemption survives in the final rules — a surviving spouse or civil partner inherits the pension free of inheritance tax. The exposure moves to second death, when the combined estate (including any remaining pension) passes to the next generation.

Q: What if someone dies before 6 April 2027?

Current rules apply in full — the change is not retrospective. For deaths before 6 April 2027, unused pension funds pass outside the estate for IHT even if the scheme pays the benefits after that date. What matters is the date of death, not the date of payment.

Q: Who deals with the tax — my family or the pension company?

Your personal representatives (usually your executors). HMRC’s final rules place the duty to report unused pensions and pay the IHT on the estate’s representatives rather than the pension schemes. In practice this means executors need a current valuation of every pension you hold — a consolidated, up-to-date record of your pots is one of the most useful things you can leave them.

Q: Should I take money out of my pension before April 2027?

Not automatically — money drawn from a pension is taxed as income when you draw it, and once outside the wrapper it may be exposed to tax on growth. But for estates clearly over the IHT threshold, drawing down steadily within the basic-rate band, recycling into ISAs, or gifting from surplus income can reduce the combined bill materially. The right order depends on your numbers; model it before acting, and take regulated advice for large estates.

What's actually changing — the two-minute version

Since 2015, defined contribution pensions have been the cleanest inheritance vehicle in Britain: a SIPP sat outside your estate, and if you died before 75 your children paid no income tax on it either. Whole retirement strategies were built on "spend the ISA, leave the SIPP."

From 6 April 2027, most unused DC pension funds — SIPPs, personal pensions, workplace DC pots, AVCs — count as part of your estate for inheritance tax. The final rules are now confirmed in HMRC's technical note, and three details matter:

The final rules, in three lines. Deaths before 6 April 2027 stay under today's rules — the change is not retrospective. The spouse and civil partner exemption survives, so for couples this is a second-death problem. And the admin lands on your executors, not the pension scheme — they'll need a valuation of every pot you hold.

The sting is for deaths at 75 or older, where beneficiaries already pay income tax on what they draw. The two taxes stack: 40% IHT first, then income tax on what's left. For a higher-rate-taxpayer child inheriting a large pot, the effective rate is 64% — 67% if they're an additional-rate payer. Defined benefit death benefits and most state-administered schemes are out of scope.

Who's actually caught

Run the numbers before you assume you're in the 1.5%. The allowances haven't changed: £325,000 nil-rate band per person, £175,000 residence nil-rate band if your home goes to children or grandchildren, both transferable between spouses — up to £1 million for a couple leaving a home to direct descendants. An estate under that, even with the pension counted in, still owes nothing.

The people genuinely caught are the ones who built wealth inside wrappers: professionals with £400k+ SIPPs, a paid-down home in an expensive postcode, and ISAs on top. Adding the pension to the estate is also what pushes many past the £2 million taper, where the residence nil-rate band erodes at £1 for every £2 over — the marginal rate through that band effectively hits 60%.

Free · Two minutes

Step zero: find out if this is your problem

Our IHT on pensions calculator models your estate under today's rules and the April 2027 rules side by side — allowances, the £2m taper, the income-tax stack at 75+, and ranked mitigation strategies with the savings quantified for your numbers.

Run the 2027 calculator →

The checklist: nine steps for nine months

1. Establish whether you're caught — with numbers, not vibes

Total your estate as it will look from April 2027: home, ISAs, GIA, cash, and every unused pension. Compare it against your allowances (remember the transferable £1m for couples with children inheriting the home). If you're comfortably under, your checklist is steps 2 and 9 only. If you're over — or the pension pushes you past £2m — keep reading.

2. Consolidate your pension records for the people you'll leave behind

Under the final rules your executors must report every unused pot to HMRC and pay the IHT on it. Executors of people with five forgotten workplace pensions are going to have a miserable 2027. A single up-to-date list — provider, plan number, current value, nomination — is now more than good housekeeping; it's what the reporting duty runs on. (This is exactly what WealthR's net-worth tracking holds — and the pensions stage of the Playbook walks through rounding up old workplace pots.)

3. Review your death benefit nominations

The spouse exemption survives, so "everything to my spouse first" still defers the whole IHT question to second death. But nominations written years ago — to children directly, or split across a family — may now route money straight into a taxable estate when routing via the survivor would not. Check what your scheme actually has on file; it's a ten-minute form.

4. Re-plan your withdrawal order

The old playbook — spend ISA first, preserve the SIPP for the kids — is now backwards for anyone with IHT exposure. Drawing pension steadily during retirement, ideally within the basic-rate band, and recycling what you don't spend into ISAs or gifts shifts wealth out of the double-tax zone at 20% instead of 64%. This is the single biggest lever for most people, and it works better the earlier it starts.

5. Start gifts out of surplus income — and document them

Regular gifts made from income you don't need are immediately exempt from IHT — no cap, no seven-year wait — provided they're regular, from income, and don't dent your standard of living. If you're drawing more pension than you spend (see step 4), this is where the excess goes. Keep a simple record of income, spending and gifts each year; your executors will thank you.

6. Start the 7-year clock on bigger gifts

Larger one-off gifts fall out of your estate after seven years. The clock only starts when the money moves — which is precisely why this is a 2026 job, not a 2033 one. Gift with your eyes open: you're giving up control, and care costs and your own longevity come first.

7. Price whole-of-life cover, written in trust

If the bill can't reasonably be shrunk — large pot, older, uncomfortable gifting — a whole-of-life policy in trust pays out outside the estate to meet the IHT charge, and the premiums can themselves qualify as gifts from income. It's one of the few mitigations that doesn't require giving capital away during your lifetime.

8. Watch the £2 million cliff specifically

If the pension pushes your (joint) estate into the £2m–£2.7m band, you're in the worst marginal zone in UK tax. Everything in steps 4–6 counts double here, because each pound moved out of the estate also claws back 50p of residence nil-rate band.

9. Book the adviser conversation this year, not next spring

Every estate-planning adviser in the country is going to spend early 2027 saying the same sentence: "I wish you'd come in a year ago." The slow levers — withdrawal order, gifting records, the 7-year clock, trusts — are worth more with every month of runway. For estates over ~£1m, this is firmly regulated-advice territory: get a plan signed off while there's still time to execute it.

Same date, second cliff: 6 April 2027 also cuts the cash ISA limit to £12,000 for under-65s while savings tax rises two points — if you hold serious cash, that one's yours too: the cash ISA guide.

A worked example, honestly run

Take a widower of 80 with a £1m SIPP and a £1m house-plus-ISA estate, everything to two higher-rate-taxpayer children. Under today's rules the SIPP passes outside the estate; the children pay income tax on drawdown but no IHT on it. From April 2027 the same death puts £2m in the estate: allowances are eroded by the taper, IHT takes its 40% slice of the excess, and the children still pay 40% income tax on what they draw from the inherited pension. On the pension alone, the combined take approaches 64p in the pound. Now rerun it with ten years of basic-rate drawdown recycled into ISAs and documented gifts from surplus income — the calculator shows the difference for your own numbers, and it's routinely six figures.

If you advise clients rather than being one: this is the question your inbox will fill with between now and April. The WealthR adviser cockpit models estate and pension-IHT scenarios per client — including the 2027 rules — so you can show the before/after in the meeting rather than promising a follow-up letter.

Frequently asked

Will my pension be taxed when I die from April 2027?

Only if your total estate — now including unused DC pensions — exceeds your allowances. A couple leaving a home to children can still shelter up to £1 million. HMRC expects around 10,500 newly liable estates a year, about 1.5% of deaths — most people will still owe nothing. Die at 75 or older, though, and beneficiaries also pay income tax on withdrawals, which can stack to 64–67% on large pots.

Does my spouse pay inheritance tax on my pension from 2027?

No — the spouse and civil partner exemption survives in the final rules. A surviving spouse inherits the pension free of IHT. The exposure moves to second death, when the combined estate passes to the next generation.

What if someone dies before 6 April 2027?

Today's rules apply in full — the change isn't retrospective. Deaths before 6 April 2027 keep the current treatment even if the scheme pays the death benefits after that date. The date of death is what counts, not the date of payment.

Who deals with the tax — my family or the pension company?

Your personal representatives (usually your executors). HMRC's final rules put the reporting and payment duty on the estate's representatives, not the schemes — which is why a consolidated, current record of every pot you hold is now one of the kindest documents you can leave.

Should I take money out of my pension before April 2027?

Not automatically — withdrawals are taxed as income, and money outside the wrapper is exposed to tax on growth. But for estates clearly over the threshold, steady basic-rate drawdown recycled into ISAs or documented gifts can cut the combined bill materially. Model it first; take regulated advice for large estates.

This is general information, not financial, tax or legal advice. Inheritance tax depends on individual circumstances, and the April 2027 rules are modelled per the published policy — final liability depends on valuations, gifts in the prior seven years, reliefs and case-specific factors. WealthR is not authorised by the Financial Conduct Authority. For estate planning decisions, please consult a qualified FCA-regulated financial adviser. HMRC-estimated figures (10,500 newly liable estates a year, roughly 1.5% of UK deaths) are from the government's published technical documentation for the measure.