Changes to Inheritance Tax and pensions

From 6 April 2027, most unused pension or certain annuity death benefits will form part of your estate for Inheritance Tax purposes. Most people are still not expected to pay Inheritance Tax but if your estate is affected, your beneficiaries could receive less when you die. 

This page explains what is changing, who may be affected and what you might want to think about now. 

Read more about Inheritance Tax on unused pension funds and death benefits

What is Inheritance Tax?

Inheritance Tax is a tax that may be charged on an estate when you die. An estate can include money, property and possessions. Whether Inheritance Tax is due will depend on individual circumstances and the tax rules which apply at the time. You can find more information on Inheritance Tax on the government website.

When you die, your personal representatives, such as an executor or administrator, are responsible for the estate. They should make sure the correct amount of Inheritance Tax is paid to HM Revenue & Customs (HMRC).

What’s changing?

Before 6 April 2027, unused pension savings and most pension or annuity death benefits are usually not included when working out if Inheritance Tax is due. Unused pension savings means money left in your pension that you’ve not taken before you die. Pension death benefits are payments that may be made from a pension or annuity after you die.

From 6 April 2027, most unused pension savings and certain pension or annuity death benefits will be included when working out the value of your estate. This means Inheritance Tax may be due if the estate, including pension savings, is above the Inheritance Tax threshold.

Who is likely to be affected?

The changes are most likely to affect your estate if you have unused pension savings when you die. Your estate is more likely to be affected if:

  • there are significant unused pension savings, or an annuity value protection lump sum
  • your estate already includes valuable assets such as property or investments.

What could the changes mean for your beneficiaries?

  • They could receive less pension death benefits if Inheritance Tax is due. The government estimates around 10,500 more estates will need to pay Inheritance Tax, and around 38,500 estates will pay more Inheritance Tax than they would have before the changes.1.
  • Personal representatives may need to gather information from pension providers and beneficiaries to work out and pay any tax due.
  • Extra checks may be needed before some unused pension or annuity death benefits are paid, which could delay payments. 

1 Gov UK Policy Paper: Inheritance Tax on unused pension funds and death benefits

How could the changes affect death benefits?

There are also new processes that may affect how pension or annuity death benefits are paid.

Withholding Notice

Your personal representative may ask a pension provider to temporarily hold back some of a pension death benefit while any potential Inheritance Tax liability is being established (known as a withholding notice). If Inheritance Tax is due, some or all of the amount held back may be used to pay the tax before the remaining benefit is paid.

Payment Notice

Your personal representative, or in some circumstances a beneficiary, may ask a pension provider to pay Inheritance Tax directly to HMRC from available pension death benefits (known as a payment notice). This could reduce the amount ultimately paid to beneficiaries.

What can you do now?

You don’t need to do anything now, but you may want to review your own circumstances and think about whether these changes could affect you or your beneficiaries.

  • Review the value of your estate, including any pension savings. 
  • Make sure your pension beneficiary nominations are up to date. This can help ensure benefits are paid according to your wishes. 
  • Consider whether your current retirement plans are still suitable. 
  • Discuss your plans with your family so they understand your wishes and how tax might affect your estate. 

Need help?

If you’re unsure how these changes might affect you, you should speak to a financial adviser or tax professional. If you don’t have a financial adviser, you can find one at www.unbiased.co.uk  You’ll normally be charged for any advice given.

We can’t give tax advice but we can explain what happens next and what information might be required.

Contact us 

The information on this page is based on current legislation and guidance. Tax treatment depends on your individual circumstances and may change in the future.