Free UK calculator · April 2027 rule change modelled
IHT on Pensions Calculator UK 2027
From 6 April 2027, your unused pension joins your estate for inheritance tax. Stack the income tax your beneficiaries already pay on inherited drawdown if you die at 75 or older, and the effective rate on a SIPP can hit 64% to 67%. This calculator models the real combined bill for your numbers, in pounds and pence — and what each inheritance tax relief is worth against them.
Nil-rate bands, the £2m taper, the 36% charity rate and the April 2027 pension rule verified against GOV.UK, September 2026.
until the rules change on 6 April 2027 · final rules confirmed in HMRC's technical note · deaths before that date stay under today's rules.
The real tax bill on your pension
All figures in today's £. Updates as you type.
You & your pension
years
years
£
%
The rest of your estate
£
£
£
%
Heirs & relationships
%
Your beneficiaries inherit (post-April 2027)
£573,562
out of a £1,213,631 pension. Effective tax rate: 52.7%
Where your pension actually goes£258k IHT · £382k income tax · £574k to heirs
IHT
Income tax
Heirs
IHT @ 40%Beneficiary income taxNet to your heirs
IHT on pension
£258k
Pension's share of total IHT
Income tax to beneficiary
£382k
@ 40% on what's left
Net to heirs
£574k
From your pension only
Pre-2027 vs Post-2027 — same pension, same death age
Before 6 Apr 2027
£485k
Income tax only — pension outside estate
From 6 Apr 2027
£640k
IHT + income tax stacked
The April 2027 change costs your beneficiaries an extra £155k
Material exposure to the 2027 change
Your pension faces an effective tax rate of 52.7% — a £1.2m SIPP loses £640k to combined IHT and income tax. The 2027 rule change alone costs your beneficiaries an extra £155k. Money drawn from a pension and moved to an ISA still counts for Inheritance Tax, but avoids the income tax a beneficiary might pay on inherited pension funds after 75.
Planning estimate using announced 2027 policy and 2026/27 IHT rules (NRB £325k, RNRB £175k with £2M taper). Excludes lifetime gifts in the prior 7 years, business and agricultural relief, defined benefit pensions, and trust arrangements. Not regulated tax advice.
✦ The rules that bear on this
The reliefs and rules, and what each is worth on your figures
Each rule below exists independently of your situation. The figure beside it is what that rule is worth against the inputs you entered, so you can see which of them actually reach your estate. The 2027 change matters here because it removes the reason pensions were commonly left untouched. Time affects several of these, so the same rule is worth different amounts at different ages.
The pension IHT change lands in April 2027, leaving one fiscal event in between — the Autumn Budget on 28 October 2026. Pension tax is rarely left alone for long.
Important caveat
The figures above are illustrative and each is worked in isolation against your inputs, so they do not add up — the rules interact, and drawing a pension down changes what the charity rate is worked on. Nothing here is a recommendation to do any of it: which, if any, of these rules is appropriate for you depends on circumstances this page cannot see. WealthR Ltd is not authorised by the Financial Conduct Authority and does not give regulated advice; a regulated adviser can.
✦ The story behind the calculator
Why the April 2027 pension change is the biggest UK estate-planning shift in a decade
For 20 years, UK pension wealth had a quiet superpower: it sat outside your estate for inheritance tax. A SIPP could pass to your children essentially IHT-free, and if you died before 75 they paid no income tax on it either. The combination produced one of the cleanest intergenerational wealth transfer tools in the developed world. Generations of professional advisers built strategies around it: spend the ISA, leave the SIPP.
From 6 April 2027 that ends. Most unused defined contribution pension funds — SIPPs, personal pensions, workplace DC schemes and AVCs — will be added to the deceased's estate for IHT purposes. The Autumn 2024 Budget announced the change and HMRC's final technical note has since settled the detail: the rules are confirmed, the legislation is in place, and the machinery is decided — your personal representatives (executors) will report the pension to HMRC and pay the IHT due on it, rather than the pension scheme handling it.
For an estate already over the IHT threshold, the implications are stark. A £500k SIPP that previously passed to children intact now contributes its share to a 40% inheritance tax bill. And because death after 75 already triggers income tax on inherited drawdown, the two taxes stack — that's the "double tax" trap.
The double-tax math, in one paragraph
You die at 80 with a £1m SIPP and a total estate of £2m, all to your two adult children. Inheritance tax takes 40% of the slice over your allowances — apportioned to the pension based on its share of the estate. Suppose £400k of the IHT bill is allocated to your SIPP. That leaves £600k. Each child receives £300k as drawdown. Both are higher-rate taxpayers, so they pay 40% income tax on it as they draw it down — another £240k between them. Total tax on the pension: £640k out of £1m. An effective rate of 64%. If your beneficiaries are additional-rate (45%), the rate climbs to 67%.
The effective rate, explained
40% IHT, then 40% income tax on the remaining 60%, equals 64% combined. (40% × 60% = 24%, plus the original 40% = 64%.) Substitute 45% for the income tax rate and you get 67%. The same pound is taxed twice — first in the estate, then in the beneficiary's hands. This effect only kicks in for deaths at age 75 or older. Death before 75 means just the IHT layer.
Why this matters most for first-generation wealth
If your parents didn't leave you a deposit, didn't pay your university fees and didn't seed a stocks & shares ISA in your name at 18, you've probably built your wealth heavily inside tax wrappers: ISAs, LISAs, workplace pensions, SIPPs. That's the right answer when you're accumulating — wrappers compound faster. But it concentrates your wealth in places the 2027 change touches most heavily. People with inherited property and old GIA holdings have more flexibility; people who've earned every pound have less.
This calculator was built specifically with that audience in mind. The rules above are the ones that reach people with most of their net worth in pensions and ISAs, rather than estate planning that assumes £3m of unwrapped legacy property.
What changes about retirement planning from 2027
The single biggest shift is what the order of withdrawal costs. The convention was to spend the bridge fund (ISA or GIA) first and leave the SIPP intact for inheritance, because the SIPP passed outside the estate. From April 2027 it does not, so the arithmetic that made that order cheap no longer holds where an estate has IHT exposure: a pension left untouched can meet inheritance tax and then income tax in the beneficiary's hands, where an ISA meets only the first. That is a change in the numbers rather than a rule about what anyone should do — and the calculator above is where your own version of it is.
This isn't true for everyone. Estates well below £1m for a couple may never owe IHT. Estates with no children/grandchildren and homes earmarked for distant relatives or friends already lose the residence nil-rate band. Death-in-service benefits and dependants' scheme pensions from defined benefit schemes are out of scope. Whether a £400k SIPP adds any inheritance tax depends on the rest of the estate and the allowances it can use; the calculator above shows the figure for your numbers.
The £2 million RNRB cliff edge
A subtle but brutal feature of the change: the residence nil-rate band of £175k per person tapers off by £1 for every £2 your estate exceeds £2m. Adding a pension to the estate from April 2027 will push many estates over £2m for the first time, costing the £175k (or £350k for a couple) RNRB on the way through. Combined estates between £2m and £2.7m face the steepest cliff edge — the marginal IHT rate on assets in that range can effectively reach 60% once the lost RNRB is factored in.
What the final rules confirmed — and who is actually caught
Three points from HMRC's final technical note matter most for planning. First, the change is not retrospective: if you die before 6 April 2027, today's rules apply in full — your unused pension passes outside the estate, even if the death benefits are paid out after that date. Second, the spouse and civil partner exemption survives intact, so for couples the exposure is a second-death problem, not a first-death one. Third, the administration lands on your personal representatives, not the pension scheme — executors will need up-to-date pension valuations alongside everything else in the estate, which makes a current, consolidated record of your pots genuinely useful to the people you leave behind.
It's also worth calibrating the scale. HMRC's own estimate is that around 10,500 estates a year will become newly liable to IHT because of the change — roughly 1.5% of UK deaths. Most estates will still owe nothing: the transferable allowances of up to £1m for a couple leaving a home to children remain in place. The change is a genuine cliff for professionals with large DC pots and homes in expensive areas — and a non-event for most households. Run your numbers above before assuming you're in the caught minority. If you are, work through the 9-month checklist — nine steps ordered so the slow levers (withdrawal order, gifting records, the 7-year clock) get the runway they need.
What stays the same
Several mitigations are unchanged: the spousal exemption (your spouse still inherits free of IHT), the 7-year rule on lifetime gifts, gifts from surplus income (uncapped), the 36% reduced rate for 10%+ charitable estates, and the residence nil-rate band rules themselves. What's changing is the asset mix in the estate, not the toolbox.
Comparison: this calculator vs other UK IHT tools
Feature
Generic IHT calc
Most UK tools
This calc
Pre-2027 vs post-2027 view
No
No
Yes
Income tax double-hit at 75+
No
No
Yes
£2M RNRB taper modelled
No
Sometimes
Yes
Transferable spousal allowances
Sometimes
Yes
Yes
10% charity 36% rate
No
Sometimes
Yes
Pension growth to age at death
No
No
Yes
Reliefs quantified on your figures
No
No
Yes
Effective rate on pension
No
No
Yes
✦ Methodology
How the calculation works, step by step
1
Grow your pension to assumed age at death
Apply your real (after-inflation) annual growth rate from current age to death age. All other estate values stay in today's £ — so the result is in today's purchasing power.
2
Build the post-2027 estate
Add the pension at death to home + ISA + GIA + cash. This is the estate that the April 2027 IHT rules apply to.
3
Calculate available allowances
£325k NRB plus £175k RNRB if home goes to direct descendants. Married: add 100% of spouse's unused allowances (up to £650k NRB + £350k RNRB). Apply the £2M taper to RNRB.
4
Work out IHT on the whole estate
Estate minus allowances minus charity gift × 40% (or 36% if charity ≥ 10% of net estate). The charity itself is exempt from IHT.
5
Apportion IHT to the pension
The pension's share of the total IHT bill = pension value ÷ total estate × total IHT. This is the IHT charge specific to your pension.
6
Apply income tax for deaths at 75+
Pension after IHT × beneficiary's marginal income tax rate. This is the existing rule (pre-existing 2015 reform), unchanged. Death before 75 = no income tax layer.
7
Compare against pre-2027 baseline
Pre-2027 the pension was outside the estate — IHT applied only to non-pension assets. The delta is what the April 2027 rule change actually costs your beneficiaries.
8
Value each relief against your numbers
Each strategy is sized against your specific inputs — drawdown ahead, gifts from income, life cover in trust, charity 36% rate, spending pension first. Estimates are illustrative and assume the strategy is applied in isolation.
✦ FAQ
Common questions about IHT on pensions UK 2027
What is changing for pensions and inheritance tax in April 2027?
From 6 April 2027, most unused defined contribution pension funds — including SIPPs, personal pensions and workplace DC pensions — will form part of your estate for UK inheritance tax purposes. They are currently outside the estate and pass to your nominated beneficiaries free of IHT. The change was announced in the Autumn 2024 Budget and confirmed in subsequent technical consultation. Death-in-service benefits and dependants' scheme pensions from a defined benefit (or collective money purchase) scheme are out of scope.
What is the double tax on inherited pensions?
If you die at age 75 or older, your beneficiaries already pay income tax at their marginal rate on any pension money they draw. From April 2027 the same pot is also hit by inheritance tax at 40% inside the estate. The two taxes stack: 40% goes in IHT, then income tax (typically 40% or 45% for adult children with their own salary) is charged on the remaining 60%. The effective rate is 64% for a 40% taxpayer beneficiary or 67% for a 45% taxpayer beneficiary.
What inheritance tax allowances apply to pensions from April 2027?
The same allowances that apply to the rest of your estate: the nil-rate band of £325,000 per person (frozen until 5 April 2031) and the residence nil-rate band of £175,000 per person if your home passes to direct descendants. Married and civil-partnered couples can transfer unused allowances to the survivor, giving up to £1 million sheltered. The residence nil-rate band tapers off at £1 for every £2 the estate exceeds £2 million and is fully lost above £2.35 million for an individual or £2.7 million for a couple.
Does the rule change apply if I die before age 75?
Yes — the IHT change applies regardless of age at death. But the existing income tax piece only applies if you die at 75 or older. Death before 75 means your pension is still subject to inheritance tax inside your estate from April 2027, but beneficiaries can draw it income-tax-free. The double-tax effect only stacks for deaths at or after 75.
What happens if I die before 6 April 2027?
Today's rules apply in full — the change is not retrospective. Deaths before 6 April 2027 are grandfathered under the current regime: unused pension funds pass outside the estate for IHT, even if the scheme pays the death benefits out after April 2027. The date that matters is the date of death, not the date of payment.
Who reports and pays the IHT on my pension — my beneficiaries or the pension scheme?
Neither: your personal representatives (executors) are responsible under the final rules. They report the unused pension funds to HMRC as part of the estate and arrange payment of the IHT attributable to them — HMRC dropped the original proposal to make pension schemes liable after consultation. Practically, this means executors need current valuations for every pension you hold, so keeping a consolidated, up-to-date record of your pots is one of the kindest things you can do for whoever administers your estate.
Can a spouse still inherit my pension tax-free?
Yes. The spousal exemption from IHT continues, so a surviving spouse or civil partner inherits the pension free of inheritance tax. The IHT issue arises when the survivor dies and the combined estate passes to the next generation. From a planning perspective, this means the IHT impact is typically deferred to second death rather than avoided entirely.
What is the residence nil-rate band taper?
The residence nil-rate band of £175,000 per person reduces by £1 for every £2 your total estate exceeds £2 million. Once a pension is added to the estate from April 2027, many UK professionals with previously unaffected estates will trigger the taper — and lose the £175,000 (or £350,000 for a couple) residence nil-rate band entirely once their estate passes £2.35 million (or £2.7 million combined). This is one of the steepest cliff edges introduced by the change.
Should I drawdown from my pension earlier to avoid the 2027 trap?
It depends entirely on the estate. The reason the conventional order existed — draw from the ISA first, leave the SIPP for inheritance — was that a pension passed outside the estate. From April 2027 it does not, so the cost of each order changes: a pension left unused can face inheritance tax and then income tax in a beneficiary's hands, while an ISA faces only the first. Whether that is worth anything to you depends on whether your estate is over the threshold at all, and the block on this page puts a figure on it for your inputs.
Does giving 10% of my estate to charity reduce inheritance tax?
Yes. If you leave 10% or more of your net estate (after allowances) to a UK qualifying charity, the inheritance tax rate on the remaining taxable estate drops from 40% to 36%. The charity itself is also exempt from IHT. The lower 36% rate offsets part of what the gift costs your other heirs. The calculator above lets you toggle a charity percentage to see the impact.
What about gifts from surplus income?
Regular gifts made out of surplus income (not capital) are immediately exempt from IHT, with no upper limit and no 7-year rule. The criteria are that the gifts must form part of normal expenditure, be made out of income, and leave you with sufficient income to maintain your standard of living. It applies to income drawn from a pension as well, so drawdown above spending needs can be gifted under it.
How does the 7-year rule work on lifetime gifts?
Gifts made more than seven years before death fall out of your estate entirely — with one notable subtlety: if you survive between three and seven years, taper relief reduces the IHT charge on amounts above the nil-rate band. Importantly, the IHT-free pension trick (under current rules) made lifetime gifting less essential for many people. From April 2027, that calculus changes and the 7-year rule becomes the primary mechanism for shifting larger sums out of estate.
Is life insurance written in trust still useful?
A whole-of-life policy with the sum assured set to the expected IHT bill, written in trust, pays out outside your estate to fund the IHT charge. Premiums can also qualify as gifts from income. For couples with substantial pensions and an IHT bill of several hundred thousand pounds from April 2027, this is one of the few mitigations that does not require giving up control of capital during your lifetime.
Are defined benefit pensions affected by the 2027 change?
Death-in-service benefits from a registered pension scheme and dependants' scheme pensions from a defined benefit arrangement are excluded from the 2027 IHT change, according to GOV.UK. Other defined benefit lump sum death benefits are not on that list, so check with the scheme. The change targets DC funds — SIPPs, personal pensions, workplace DC and AVCs — which is where the bulk of UK private pension wealth now sits.
How accurate is this calculator?
It uses the published 2026/27 UK rules — NRB £325,000, RNRB £175,000 with the £2 million taper, transferable spousal allowances, the 36% charity rate and the existing income tax rules for inherited pensions where death is at or after 75. The April 2027 change is modelled per the announced policy. It is a planning tool, not legal or tax advice. Final IHT depends on the precise structure of your estate, valuation timing, gifts in the prior 7 years, business/agricultural reliefs and other case-specific factors. WealthR is not a regulated financial adviser — speak to one for personal recommendations.
Track the actual plan, not just the headline number.
Modelling the 2027 change is a one-shot exercise. Living through it is a 20-year tracking problem: pension drawdown, ISA balances, gifts, life cover. WealthR is a UK net worth and retirement tracker: the free Estate panel shows an inheritance tax estimate with the 2027 pensions change switched on or off, and Pro adds a gift log. Free to try.