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⚠ 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 — and the mitigation strategies that still work post-2027.

⚠️
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 tax Net 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. Most professionals in this band benefit from drawing pension earlier and recycling into ISAs.
Planning estimate using announced 2027 policy and 2025/26 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.
✦ What you can actually do about it

Ranked mitigation strategies for the 2027 change

Each strategy below is ranked by approximate impact on your numbers above. The 2027 change inverts a lot of conventional UK retirement advice — particularly the old wisdom of preserving SIPPs for inheritance. Most of these moves are more powerful the earlier you start.

⚠ Important caveat

Saving estimates above are illustrative — they apply each strategy in isolation against your inputs. Real-world combinations interact (e.g. spending the pension first reduces what's available for charity-rate planning). Speak to a regulated adviser before reorganising serious money. WealthR is not authorised to give regulated financial advice.

✦ 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; subsequent technical consultation has confirmed it. The scope, mechanics and reporting obligations are still being finalised in places, but the headline rule is settled.

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 mitigation strategies above prioritise the moves available to professionals with most of their net worth in pensions and ISAs — not estate planning that assumes you're sitting on £3m of unwrapped legacy property.

What changes about retirement planning from 2027

The single biggest shift is the optimal order of withdrawal in retirement. Pre-2027 UK FIRE wisdom: spend the bridge fund (ISA / GIA) first, leave the SIPP intact for inheritance, draw State Pension when it kicks in at 67. Post-2027: that order is wrong if you have any IHT exposure. Drawing pension during your lifetime — at your own income tax rates, ideally inside the basic rate band — and recycling net amounts into ISAs (or gifting from surplus income) shifts the wealth into wrappers that don't compound the tax problem.

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. Defined benefit pensions and most state-administered schemes are out of scope. The calculator above is the cleanest way to see whether the change actually affects your situation — for most professionals with a £400k+ SIPP, the answer is yes.

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 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 viewNoNoYes
Income tax double-hit at 75+NoNoYes
£2M RNRB taper modelledNoSometimesYes
Transferable spousal allowancesSometimesYesYes
10% charity 36% rateNoSometimesYes
Pension growth to age at deathNoNoYes
Ranked mitigation strategiesNoNoYes
Effective rate on pensionNoNoYes
✦ 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
Rank mitigation strategies for 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. Defined benefit lump sum death benefits and most state-administered schemes 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 April 2030) 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.
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?
For many people the answer is yes, but it depends on your tax position. The traditional UK retirement playbook of "draw from ISA first, leave SIPP for inheritance" is reversed by the April 2027 change. Drawing from the pension during your lifetime — particularly using the 25% tax-free PCLS plus drawdown within the basic rate band — and reinvesting net amounts into ISAs or gifting from surplus income can materially reduce the combined tax bill. The mitigation strategies block on this page shows the impact for your numbers.
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. For larger estates the charity reduction can save more than the gift costs your other heirs in absolute terms — particularly when the estate is just above the threshold. 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. This is the most under-used IHT tool in UK estate planning and arguably the cleanest mitigation for the 2027 pension change — particularly if you are taking pension drawdown above your spending needs.
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?
More useful than ever. 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?
Most defined benefit lump sum death benefits and the great majority of state-administered schemes are excluded from the 2027 IHT change. Survivor pensions paid as ongoing income from a DB scheme are also outside scope. The change targets DC funds — SIPPs, personal pensions, workplace DC and AVCs — which is where the bulk of UK private pension wealth now sits.

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 recycling, gifts from income, life cover. WealthR is a UK net worth and retirement tracker built for professionals doing this work themselves — no advisers, no intermediaries, no email gates. Free to try.

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