The short version

From 6 April 2027, most unused pension funds and pension death benefits will be counted as part of your estate for inheritance tax (IHT). Under today’s rules, defined-contribution pension pots can usually pass to your beneficiaries free of IHT — that treatment is being removed. This is an announced change; the detailed rules are being finalised through regulations expected in the Autumn, so some mechanics may still shift before it takes effect.

It matters most if you have a sizeable pension you were intending to leave untouched as a tax-efficient way to pass on wealth. For many people with more modest pots, or who spend their pension in retirement, the day-to-day impact will be small.

What is actually changing

Right now, if you die with money left in a defined-contribution pension, it can generally be passed to your beneficiaries outside your estate — and therefore outside inheritance tax. From 6 April 2027 the government plans to bring those unused funds and lump-sum death benefits back into the estate for IHT purposes.

The stated reason is to stop pensions being used mainly as a wealth-transfer vehicle rather than for funding retirement, and to make the treatment of different pension types more consistent.

Who is affected — and who is not

Some important exemptions are being kept:

  • Money passing to a surviving spouse or civil partner (a long-term UK resident) stays exempt from inheritance tax, as it is today.
  • Money passing to a registered charity stays exempt.
  • Death-in-service benefits paid from a registered pension scheme are excluded from the change.

HMRC estimates that of roughly 213,000 estates a year with inheritable pension wealth, around 10,500 would face an inheritance tax bill for the first time, and about 38,500 would pay more than before. Where pension assets tip an estate into IHT, the average additional liability is estimated at around £34,000.

Who will report and pay the tax

From 6 April 2027, personal representatives (the people administering your estate) become responsible for reporting and paying any inheritance tax due on unused pension funds and death benefits. That is a meaningful admin change for executors, and one reason to keep your pension paperwork and beneficiary nominations tidy and up to date.

What you can do to prepare

Nothing here is personal advice, and it is sensible to wait for the final rules before making big, irreversible decisions. But reasonable general steps to consider include:

  • Review the beneficiary nominations on every pension you hold, and check they still reflect your wishes.
  • Understand how the spousal exemption fits your situation if you are married or in a civil partnership.
  • Think about the order you draw income in retirement — the old "spend other savings first, leave the pension last" logic is exactly what this change targets.
  • Factor the change into any estate or inheritance planning, alongside the nil-rate bands and other reliefs.
  • Speak to a qualified financial adviser or tax specialist before acting — the numbers are individual and the rules are still being finalised.

A quick word on advice

This article is general information about an announced policy change, not personal financial or tax advice. The detailed rules are subject to regulations expected later in the year and could change. Your own position depends on the size and type of your pensions, your marital status and the rest of your estate. For decisions about pensions, inheritance tax or estate planning, speak to an appropriately authorised UK financial adviser or a tax specialist.