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Pensions & inheritance tax — 20 October 2026 — by Laurence Gould
For years, pension savings have usually passed outside your estate for inheritance tax. From 6 April 2027 that changes — and wills, pension nominations and executors' responsibilities all need a fresh look.
For deaths on or after 6 April 2027, most unused pension funds and pension death benefits will count as part of your estate for inheritance tax. Until now most pensions sat outside the estate, so many families who never expected an inheritance tax bill may now face one — and your executors, not the pension company, will be responsible for reporting and paying it.
The change was made law by the Finance Act 2026. From 6 April 2027 it brings into the estate the value of most unused pension savings — for example money still invested in a personal pension or drawdown pot — and most lump-sum death benefits.
Some benefits stay outside, including death-in-service benefits from your current job and pensions paid to a dependant from a final-salary (defined benefit) scheme. Pensions left to a husband, wife or civil partner remain free of inheritance tax, just like other assets left to a spouse. Deaths before 6 April 2027 are dealt with under the old rules.
More estates will pay inheritance tax. Adding a pension to the value of your home and savings can take an estate over the nil-rate band (£325,000) and the residence nil-rate band (up to £175,000), or increase a bill that was already expected.
The residence nil-rate band can be lost. It reduces for estates worth more than £2 million, and a pension now counts towards that figure — so a will that relied on the full allowance may no longer achieve what you intended.
Your executors carry more responsibility. They will need to find out the value of every pension, include it in the inheritance tax account and arrange payment. They can ask a scheme to hold back part of a beneficiary's payment, or to pay tax directly to HMRC, while this is sorted out. Choosing executors who can manage this — and leaving them a clear list of your pensions — matters more than ever.
Income tax can apply as well. If you die aged 75 or over, the people who inherit your pension normally pay income tax on what they draw. The part used to pay inheritance tax is not taxed again as income, but the combined effect can still be significant.
Whether your will still makes the best use of both nil-rate bands and the residence nil-rate band once your pensions are added in. Whether your pension nominations still reflect your wishes and work alongside your will — the people named need not be the same. Whether your executors know where your pensions are and can deal with the extra work. And whether lasting powers of attorney are in place, so someone you trust can manage your affairs if you can't.
We review wills, trusts and lasting powers of attorney with these changes in mind. Our sister firm deals with pensions and investments.
If you have pension savings you don't expect to spend, your estate plan was probably built for rules that change on 6 April 2027 — a review now is far easier than leaving your executors to deal with the consequences.
This article is general information about the law of England and Wales as at October 2026, not advice on your own circumstances. Tax rules can change. Source: HMRC, Inheritance Tax on pensions: technical note.
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