Inheritance tax on pensions after 75 and the income tax on top

Why age 75 matters

The age of the pension holder at death decides the income tax on an inherited pension, and that rule is not changed by the April 2027 reforms.

GOV.UK sets out the position. Where the pension holder died under 75, most lump sums from a defined contribution or defined benefit pension are paid without income tax, unless they exceed the holder's lump sum and death benefit allowance, and an annuity or money from a drawdown fund set up or first accessed from 6 April 2015 is also tax-free. Where the holder died at 75 or over, the provider deducts income tax from lump sums, annuities and drawdown payments. HMRC's technical note puts it in one line: if the member was over age 75, all death benefits are taxable.

The standard lump sum and death benefit allowance is £1,073,100, and it is higher for people who hold a protected allowance. Before 75, a lump sum death benefit loses its tax-free status if it is paid more than two years after the scheme knew, or should have known, of the death. A dependants' scheme pension is taxed as the recipient's income whatever age the member died at.

After 75, income tax on inherited pension payments is charged on the beneficiary. The payments are added to their other income for the tax year, so the rate depends on who inherits and on how much they take in a year.

Inheritance tax first, then income tax

For deaths on or after 6 April 2027 the unused pension also counts towards the estate for inheritance tax, under section 150A of the Inheritance Tax Act 1984. So the same money can meet two taxes. Inheritance tax is charged on the estate at death, including the pension. Income tax is charged later, on the beneficiary, as they draw the money out.

Before 75 the inheritance tax is normally the only one to consider, because most death benefits are free of income tax. After 75 both apply, and the combined charge on an inherited pension is highest in this group.

The order matters for the arithmetic. Inheritance tax is worked out first, on the value at death. The income tax that follows is charged only on what the beneficiary receives after the inheritance tax, provided one of the two routes described next is used.

The income tax relief for inheritance tax paid

Without a relief, a beneficiary could pay income tax on money that had already gone to HMRC as inheritance tax. The Finance Act 2026 prevents that. Section 70 of the Act inserts a new section 567B into the Income Tax (Earnings and Pensions) Act 2003, allowing a deduction from taxable pension income for inheritance tax paid on the pension death benefit. For this purpose inheritance tax includes interest on it. Section 71 applies the change to deaths on or after 6 April 2027.

HMRC's technical note describes two routes to the same result.

The first is a payment notice. The personal representatives or the beneficiary tell the scheme to pay the inheritance tax direct to HMRC out of the pension, under section 226B of the 1984 Act. The scheme reduces the benefits by the amount paid, so income tax is charged only on what is left. A notice has to be for at least £1,000 and needs money still held in the scheme, so it cannot be used once the fund has bought an annuity.

The second route is for the beneficiary to take the full benefits, pay income tax on them, and bear the inheritance tax themselves, whether by paying HMRC direct, by reimbursing the personal representatives, or by receiving less from the rest of the estate. The legislation then lets them reduce their taxable pension income by the inheritance tax they bore. HMRC says beneficiaries will need to work with HMRC to settle their income tax position, and that guidance on how will follow.

The first route avoids a reclaim, because the correction is made before any income tax is deducted. HMRC's own example has a beneficiary choosing a payment notice to simplify his income tax position. If inheritance tax is later refunded, for example after a value is corrected, section 579CB treats the refund as pension income where the deceased was 75 or over.

Worked figures for each £100 of pension

These figures take £100 of unused pension left by someone who died aged 75 or over on or after 6 April 2027. They assume the rest of the estate has already used the nil-rate bands, so the pension bears inheritance tax at the full 40%, and that the inheritance tax is paid by payment notice. The income tax rates are the 2026 to 2027 rates published on GOV.UK, applied to the whole £60 at the beneficiary's top rate.

Beneficiary's top income tax rate	Inheritance tax	Income tax on the remaining £60	Left for the beneficiary
Basic rate, 20%	£40	£12	£48
Higher rate, 40%	£40	£24	£36
Additional rate, 45%	£40	£27	£33
Scottish higher rate, 42%	£40	£25.20	£34.80
Scottish top rate, 48%	£40	£28.80	£31.20

On a fund of £200,000 left to a higher-rate taxpayer, that is £80,000 of inheritance tax and £48,000 of income tax on the remaining £120,000, leaving £72,000, if all of it is taxed at 40%. The amount taken in each tax year decides the rate. In the rest of the UK the higher rate runs from £50,271 to £125,140 and the additional rate applies above that, so £120,000 taken in one year on top of other income would push part of it into the additional rate. The personal allowance is also reduced by £1 for every £2 of income over £100,000, and is lost entirely at £125,140.

For comparison, the same £100 left by someone who died under 75, paid as a lump sum within two years and within the allowance, bears the £40 of inheritance tax and no income tax, leaving £60.

The deduction under section 567B keeps the figures at those levels. A higher-rate beneficiary who took the full £100, paid £40 of income tax on it, paid the £40 of inheritance tax from their own money and never claimed the deduction would be left with £20. Claiming it reduces the taxable amount to £60, the income tax to £24, and the net result to £36.

Two cautions on the figures. The rates for 2027 to 2028, the first tax year in which the new rules can apply, had not been confirmed at the end of September 2026. And the inheritance tax borne by a pension depends on the whole estate: HMRC calculates the tax on the combined total and divides it between the free estate and the pension, so a pension in a smaller estate may bear less than 40%.

Lump sum or beneficiary's drawdown

How a beneficiary takes the money changes the income tax, because the rate depends on the tax year in which each payment is made. A single lump sum is added to one year's income. Money moved into a beneficiary's drawdown account can be drawn over several years, which can keep more of it in a lower band.

A beneficiary's drawdown account has its own consequence. Money left in it counts towards the beneficiary's own estate when they die, under the same rules. HMRC's note gives the example of a son who inherited £200,000 of his mother's pension into drawdown and died in 2030 with a balance remaining, which was added to his own notional pension property.

Lump sums paid to anyone other than an individual follow different rules. If the holder died at 75 or over, a lump sum paid to personal representatives, a company or trustees who are not bare trustees is charged at 45% under the special lump sum death benefits charge in section 206 of the Finance Act 2004. For deaths from April 2027, new section 206A takes the part used to pay inheritance tax out of that charge. Pension expression of wish forms and your will covers when a payment to the estate or a trust can happen.

Which option suits a beneficiary depends on their income, their age, what they need the money for and how it is invested. That is financial advice, and a regulated financial adviser is the person to give it. The legal questions around it, including who the trustees can pay, the will and the inheritance tax account, are ones we deal with.

Pensions inherited by a spouse or civil partner

A pension passed to a surviving spouse or civil partner who is a long-term UK resident is exempt from inheritance tax, as other assets passing to them are. The income tax still applies if the holder died at 75 or over. A surviving spouse drawing from an inherited pot pays income tax at their own rate on what they take, with no inheritance tax to deduct.

A dependants' scheme pension from a final salary scheme is excluded from inheritance tax whatever the age at death, and taxed as the recipient's income. HMRC's note says dependants' scheme pensions are always taxed at the recipient's marginal rate.

The exemption postpones the inheritance tax question to the survivor's death. Whatever remains of the inherited pot, and of the survivor's own pensions, is added to their estate then. Where the survivor is also 75 or over at death, the next generation meets both taxes on that money.

Pension left to charity

HMRC confirms that a charity lump sum death benefit is tax-free even where the member was 75 or older. It is available only from money purchase arrangements where the member had no dependants. Pension money passing to a qualifying charity is exempt from inheritance tax, and it also counts towards the 10% of the net estate that brings the rate on the rest down to 36%: HMRC's note says pension property forms part of the general component of the estate for that test.

For somebody who intends to leave money to charity anyway, the choice of which asset to use can change the result for the family. On the assumptions in the figures above, £100 of pension left to a higher-rate child after 75 leaves £36 in their hands. £100 of savings left to the same child bears the inheritance tax and no income tax, leaving £60. Whether leaving pension money to charity and other assets to family suits a particular estate is a question to work through with a financial adviser and with us.

Questions to settle before April 2027

For a pension holder aged 75 or over, or approaching it, four questions help decide whether anything needs to change.

• Is the estate likely to be taxable once the pensions are added? If not, income tax on what the family draws is the only tax on the pension.
• Who is named on each pension form, and what rate of income tax do they pay? A higher-rate beneficiary keeps less of each £100 than a basic-rate one.
• Does the will say who bears the inheritance tax on the pension? Without a direction, the tax attributable to the pension falls on the person who receives it.
• Would drawing more now, to spend or give away, leave the family better off? Withdrawals are taxable income for the holder, and the exemption for normal expenditure out of income is tested on the facts. That is a question for a financial adviser and an accountant.

Several points are still to come. HMRC has said its third technical note, expected in autumn 2026, will cover the interaction between inheritance tax and income tax, and guidance for beneficiaries on reducing their taxable pension income is still to be published. These figures will need checking against the 2027 to 2028 income tax rates once they are set. Will my pension be subject to inheritance tax sets out which pensions count towards the estate, and the executors' guide covers the deadlines.

Frequently asked questions

Is an inherited pension taxed if the person died after 75?

Yes. Where the pension holder died at 75 or over, lump sums, annuity payments and drawdown income paid to the beneficiary are taxed as the beneficiary's income, with the provider deducting income tax. For deaths on or after 6 April 2027 the unused fund also counts towards the estate for inheritance tax, so both taxes can apply to the same money.

Do you pay inheritance tax and income tax on an inherited pension?

From 6 April 2027, both can apply where the holder died at 75 or over and the estate is above the thresholds. Inheritance tax is worked out first. New section 567B of the Income Tax (Earnings and Pensions) Act 2003 then stops income tax being charged on the part that went in inheritance tax, either automatically through a payment notice or by a deduction the beneficiary claims.

How much of an inherited pension will I keep?

At 2026 to 2027 rates, where the pension bears inheritance tax at 40% and the inheritance tax is paid by payment notice, a basic-rate taxpayer keeps £48 of each £100, a higher-rate taxpayer £36 and an additional-rate taxpayer £33. The pension may bear less than 40% in a smaller estate, and the rate you pay depends on how much you take in each tax year.

What is a payment notice and does it help with income tax?

A payment notice under section 226B of the Inheritance Tax Act 1984 tells the pension scheme to pay the inheritance tax direct to HMRC out of the pension. The scheme must pay within 35 days of a valid notice, which must be for at least £1,000. Because the benefits are reduced by the tax paid, income tax is charged only on what is left, with nothing to reclaim.

Is a pension left to my wife taxed if I die after 75?

There is no inheritance tax on it where she is a long-term UK resident, because the spouse exemption applies. She pays income tax at her own rate on what she draws, because you died at 75 or over. On her death, whatever is left of the inherited pot counts towards her estate for inheritance tax, and her beneficiaries may then face both taxes.

Will these figures change?

They may. They use the income tax rates for 2026 to 2027, and the rates for 2027 to 2028 had not been confirmed at the end of September 2026. HMRC has also said a third technical note will cover the interaction between inheritance tax and income tax, and guidance on claiming the income tax deduction is still to be published.

Sources & further reading

• legislation.gov.uk — Finance Act 2026, section 70 (income tax amendments)
• legislation.gov.uk — ITEPA 2003, section 567B
• legislation.gov.uk — Finance Act 2004, section 206 (special lump sum death benefits charge)
• GOV.UK — Technical note: Inheritance Tax on pensions
• GOV.UK — Tax on a private pension you inherit
• GOV.UK — Lump sum and death benefit allowance
• GOV.UK — Income Tax rates and Personal Allowances
• GOV.UK — Income Tax in Scotland

This article is general information, not legal advice. The law changes and depends on your circumstances — always take advice on your specific situation before acting. Last reviewed 29 September 2026. AD Solicitors Limited is a recognised body regulated by the SRA (no. 8011228).