Guide · rules for England and Wales, checked 2 October 2026
Inheritance tax on pensions from April 2027
For deaths on or after 6 April 2027, money left in a pension counts towards inheritance tax. In the first year, about 10,500 more estates will pay, and 38,500 will pay more.
Work out your own family’s bill with the inheritance tax calculator: today and from April 2027, side by side, free and with no email needed.
What changes on 6 April 2027
Until then, a defined contribution pension (a pot you or an employer paid into) usually sits outside the estate. From 6 April 2027 the value of an unused pot, and most lump sums paid out on death, are added to the estate before the tax is worked out.
- Still exempt: anything left to a husband, wife or civil partner, and anything left to charity.
- Not counted: death-in-service benefits, if still employed when they died.
- Also not counted: a pension paid for life to a widow, widower or dependant, or a joint-life annuity (one that carries on paying a partner).
- Counted, even if part has been taken: whatever is left in a pot, including money in drawdown (a pot you take an income from).
- Who pays: the executors are responsible, and whoever inherits the pension shares the liability.
How the tax is paid out of the pension
Either the executors or whoever inherits can ask the scheme to pay the tax. The executors can have it hold back up to half of a share going to anyone but a spouse or charity, for up to about 15 months.
The bands, which have not changed
- Everyone has a tax-free allowance, the nil-rate band, of £325,000.
- Leave the home to children or grandchildren and up to £175,000 more is tax free (the residence nil-rate band), capped at the value of the home they inherit.
- That residence band shrinks by £1 for every £2 the estate is worth over £2 million. Pensions now count towards that £2 million.
- Married couples and civil partners pass anything unused to the survivor, so up to £1 million can pass free of tax on the second death.
- Unmarried couples cannot pass on either band.
- Above the bands the rate is 40%. Both bands are frozen until April 2031.
Two exceptions: a spouse who died before 2017, and leaving 10% to charity
If the first of a married couple or civil partners died before 6 April 2017, the whole residence band passes whatever they left, because it did not exist then.
The rate is 36% instead of 40% if at least 10% of the estate, after debts, other exemptions and the £325,000 band, goes to charity.
Three worked examples
Rounded figures, for deaths after 6 April 2027, with the home left to children. Real estates have debts, funeral costs and gifts that change the answer.
1. A widow with her late husband’s bands
House £400,000, savings £100,000, an untouched pension of £150,000. Inheritance tax: £0, before and after.
How the £0 is worked out
Her husband left everything to her, so she has both his bands as well as her own: £650,000 nil-rate band and £350,000 residence band, £1,000,000 in all.
| Estate today | £500,000 |
| Estate from April 2027 (with the pension) | £650,000 |
| Tax-free bands | £1,000,000 |
| Inheritance tax | £0, before and after |
2. A single person who never married
House £350,000, savings £150,000, an untouched pension of £200,000. Inheritance tax: £0 today, £80,000 from April 2027, all of it caused by the pension.
How the £80,000 is worked out
One set of bands: £325,000 plus £175,000, so £500,000.
| Estate today | £500,000: inheritance tax £0 |
| Estate from April 2027 | £700,000 |
| Above the bands | £200,000 |
| Inheritance tax at 40% | £80,000, all of it caused by the pension |
3. A couple whose pension tips the estate past £2 million
On the second death: house £800,000, savings and investments £900,000, pension £500,000. The survivor has both sets of bands. Inheritance tax: £280,000 today, £520,000 from April 2027.
The pension adds £500,000 to the estate but £240,000 to the tax, because it also pushes the estate over £2 million and shrinks the residence band.
How the £520,000 is worked out
| Today | From April 2027 | |
|---|---|---|
| Estate | £1,700,000 | £2,200,000 |
| Nil-rate bands | £650,000 | £650,000 |
| Residence bands | £350,000 | £250,000 (cut by £100,000: half of the £200,000 over £2m) |
| Above the bands | £700,000 | £1,300,000 |
| Inheritance tax at 40% | £280,000 | £520,000 |
Gifts
- £3,000 a year is always free of tax (£6,000 if last year’s allowance went unused).
- On top, you can give £250 each to any number of other people.
- Wedding gifts are free too: up to £5,000 to a child, £2,500 to a grandchild and £1,000 to anyone else.
- Regular gifts out of surplus income, that leave your standard of living intact, are exempt straight away. Keep a record.
- Larger gifts fall out of the estate after seven years.
- If you die within seven years, they use the nil-rate band first. Only gifts above the band are taxed, on a sliding scale after three years.
- Giving away the house and staying in it rent free does not work: it stays in the estate.
- Gifts made to avoid care fees can still be counted by the council, with no time limit. How care fees work.
What a will can still change
- Leaving the home to children or grandchildren is what unlocks the residence band. A will that leaves it to a trust or to nephews and nieces may lose it.
- Leaving at least 10% of the estate to charity (measured after debts, other exemptions and the £325,000 band) cuts the rate on the rest to 36%.
- Pension nominations sit outside the will: check who the scheme has on file.
Questions to take to a regulated adviser
- Should the pension be drawn, nominated to a spouse, or left as it is?
- Is regular gifting from income realistic, and how should it be recorded?
- Would leaving 10% to charity cut the bill on the rest?
- Does the will keep the residence nil-rate band?
Only an adviser authorised by the Financial Conduct Authority can recommend a pension decision or a product. The Autumn Budget on 28 October 2026 could change any of this, which is why this page is dated.