Will my pension be subject to inheritance tax from April 2027?

When the new rules apply

The answer depends first on the date of death. For deaths on or after 6 April 2027, section 150A of the Inheritance Tax Act 1984, inserted by section 66 of the Finance Act 2026, treats a member of a registered pension scheme as beneficially entitled, immediately before death, to what the Act calls notional pension property. That value is added to everything else the person owned when the inheritance tax on the estate is worked out. For deaths before that date the old rules apply, even where the scheme pays the family after April 2027.

The same section applies to qualifying non-UK pension schemes and to section 615(3) schemes, the overseas and employer arrangements the Act names alongside UK registered schemes. Nothing outside those three categories is brought in.

So the question "will my pension be subject to inheritance tax?" breaks into two smaller ones. Is any value left in the pension on your death that could be paid out to somebody? And if so, is that payment one of the four kinds the Act excludes? The sections that follow take each common type of pension in turn.

Being counted does not by itself mean tax is payable. Inheritance tax is charged at 40% on the part of the estate above the available thresholds, and HMRC's technical note says in terms that most estates will not have an inheritance tax liability. The pension counts towards the total. Whether that total is taxable is a separate calculation, covered in the last section.

Personal pensions, SIPPs and workplace pots

Defined contribution pensions are the ones most clearly caught. That covers personal pensions, self-invested personal pensions and the workplace pots built up through an employer. The Act calls these money purchase arrangements, and Step 1 of section 150A counts the value of any property held in the member's pot that may or must be used to provide benefits on their death.

In practice that is the value of the pot on the day of death. It makes no difference whether the scheme trustees have discretion over who receives it. Before April 2027 that discretion was the reason these pots sat outside the estate. From that date it still decides who receives the money and when the value is treated as passing to them, but it no longer keeps the value out of the calculation.

Step 1 also brings in property outside a member's own pot where it can reasonably be expected to be used to pay benefits on the death. That covers cash balance schemes and cases where a scheme is expected to add to the death benefit. HMRC says an addition of that kind is counted only where, at the time of death, there is a reasonable expectation that it will be made.

Where you have several pots from different jobs, each one is valued and the values are added together. HMRC's example is a man who dies at 62 with a £200,000 pot in his current employer's scheme and a £75,000 pot from an earlier job, which also pays a £25,000 lump sum because he died before its retirement age. His notional pension property is £300,000.

Drawdown and inherited pots

A pot you have already started drawing from is treated in the same way as one you have not touched. What counts is the value left in the drawdown fund at death. HMRC's first worked example in its August 2026 note is a woman of 72 with an annuity and £50,000 in flexi-access drawdown. The annuity stopped on her death and was valued at £0. The drawdown fund was valued at £50,000.

Money you inherited from somebody else's pension and kept in a beneficiary's drawdown account is also counted when you die. HMRC's note describes a mother who died in July 2026, before the change, leaving £400,000 in drawdown split between her son and daughter. Her own death fell under the old rules. When her son dies in 2030 with money still in his beneficiary's drawdown account, that balance is added to his own notional pension property. A family that inherited pension money under the old rules can find it counted on the next death.

Final salary and public service pensions

Defined benefit schemes work differently. This covers private final salary schemes and the public service schemes, including those for the NHS, teachers, the civil service, the armed forces and the police. There is no pot. The scheme promises an income, and the Act values what the scheme will pay out because of the death.

Step 2 of section 150A counts three things for each defined benefits arrangement: any lump sum death benefit that must be paid, any lump sum death benefit that may be paid and can reasonably be expected to be, and any payments continuing after death under a guarantee. It then deducts anything that may only be paid as an excluded benefit.

The pension a retired member was drawing is not counted where it stops on death. HMRC's intestacy example describes a widower of 80 whose defined benefit pension ceased when he died, and the scheme confirmed there was no notional pension property. Guarantee payments are treated differently. Where a member dies within the first 10 years of a pension that carries a guarantee, the remaining instalments paid on to somebody else are brought into the calculation.

A pension paid to a widow, widower, civil partner or dependent child is a dependants' scheme pension, and it is excluded whatever kind of scheme pays it. The wording carries a condition. The exclusion applies to a benefit that may only be paid as a dependants' scheme pension. HMRC says that if the beneficiary could have chosen another form of death benefit, such as a dependants' annuity, the benefit is not excluded, even if a scheme pension is what they take.

Lump sums from a final salary scheme are where the tax lands. A lump sum death benefit payable on the death of a pensioner, or of a member who had left the employer and kept a deferred pension, is counted. HMRC says lump sums on the death of a deferred member will not normally be death in service benefits, although a dependants' scheme pension from the same scheme remains excluded.

Annuities

An annuity bought with a pension pot, which pays an income for life and stops on death, leaves nothing behind to tax. HMRC's example of an annuity that ceased on death gives it a value of £0.

Three features change that. A joint life annuity, where a second annuity is bought together with yours to continue to a partner or another person after your death, is excluded by section 150A(6)(c), and HMRC confirms the other person does not have to be a dependant. A guarantee period, which keeps payments going for the rest of a fixed term if you die early, is brought in for the value of the remaining payments. And an insurer paying an annuity is under the same duty as a pension scheme to give the personal representatives a value when they ask for one.

Death in service lump sums

A lump sum paid because you die while working for an employer is excluded, on a definition tighter than the everyday phrase. Section 150A(6)(d) covers an amount payable if the member is in employment or other work of a particular description immediately before death, and not payable if they are not.

In HMRC's example of the man of 62 with two pensions, his current employer's scheme paid a death in service lump sum of 2.5 times his salary, £65,000. That sum was excluded, and his notional pension property was the £300,000 from his two pots. The exclusion followed from the lump sum being payable only because he was still employed there.

Three limits come from HMRC's guidance. Benefits from the schemes of earlier jobs, where the person was only a deferred member, do not qualify. A refund of contributions paid alongside the salary multiple is not excluded, because that scheme would have paid it in other circumstances. And whether somebody on a career break, on long-term sick leave or leaving under a redundancy package counts as still in employment is for the employer and the scheme to decide under their own rules.

The state pension

The state pension is paid by the government under social security law. It is not a registered pension scheme, a qualifying non-UK pension scheme or a section 615(3) scheme, so section 150A does not reach it. It stops on death, and any extra state pension a surviving spouse or civil partner can inherit follows the separate rules GOV.UK sets out for inheriting the state pension.

Pensions left to a husband, wife or civil partner

Where the whole of a pension passes to a surviving spouse or civil partner who is a long-term UK resident, the spouse exemption applies and no inheritance tax is charged on it. Section 69 of the Finance Act 2026 amended the exemptions so that they reach benefits received under the scheme. Gifts to charities are covered in the same way.

Two points catch families out. The value still has to be reported: HMRC is clear that exemptions are ignored when the notional pension property is valued, so the personal representatives obtain the full figure and claim the exemption in the inheritance tax account. And the exemption depends on who the trustees pay. Naming your spouse on the scheme's form is a request to the trustees. Where they split the fund between a spouse and adult children, the children's share is taxable. Pension expression of wish forms and your will covers how the form and the will fit together.

For couples, the exemption postpones the question to the second death. Whatever is left in the survivor's own pensions then, including any inherited pot held in beneficiary's drawdown, counts in their estate.

Working out whether your estate will pay

Start with everything you own: the house, savings, investments, and any life policy not written in trust. Add the value of each pension pot and drawdown fund, any lump sum death benefit your final salary scheme would pay, and the remaining payments under any annuity guarantee. Leave out the state pension, a dependants' scheme pension, a joint life annuity and a death in service lump sum from your current employer.

Compare the total with the thresholds. The nil-rate band is £325,000. The residence nil-rate band adds up to £175,000 where a home passes to children or grandchildren, so the threshold can reach £500,000, and a surviving spouse or civil partner can add any threshold the first to die did not use. Both bands are frozen to 5 April 2031. Anything left to a spouse, civil partner or charity is exempt. Tax is charged at 40% on the rest above the thresholds, or 36% on some assets where at least 10% of the net estate goes to charity.

If the total with the pension included is comfortably below the thresholds, April 2027 changes little for you beyond the information your executors will need to collect. If it is above them, several reliefs people expect do not help. Business relief and agricultural relief cannot apply to pension property, because the member is not treated as owning the scheme's assets. Tax on the pension cannot be paid in instalments, and loss on sale relief is not available. Pensions and inheritance tax from April 2027 sets out those points with the statutory references, and the executors' guide covers the deadlines they face.

Whether to change anything is a separate decision. Drawing more from a pension to spend or give away has income tax consequences, and whether it helps depends on your age, your other income and who inherits. The exemption for normal expenditure out of income has not changed, and HMRC says whether gifts made from pension withdrawals qualify is tested on the facts of each case. The investment side of that is for a financial adviser; the will, the forms and the inheritance tax position are for a solicitor. Where you are 75 or over, your beneficiaries will also pay income tax on what they draw, which is covered in inheritance tax on pensions after 75.

Some of the detail is not settled. HMRC has said a third technical note will cover international issues, the interaction with income tax, intestacy and trusts. A statutory instrument intended to let estates holding pension property qualify as excepted estates had not been made at the end of September 2026, so whether a simple estate with a pension will need a full inheritance tax account is still open.

Frequently asked questions

Will my NHS or teachers' pension be subject to inheritance tax?

Only in part. These are defined benefit schemes. The pension you draw stops on death and adds nothing to the estate. A pension paid on to a spouse, civil partner or dependent child as a dependants' scheme pension is excluded, provided no other form of benefit could have been chosen instead. Lump sums paid because of the death are counted, except a lump sum payable only because you died while still employed in that job.

Is my private pension pot subject to inheritance tax?

Yes, for deaths on or after 6 April 2027. The value of a personal pension, SIPP or workplace defined contribution pot at the date of death counts towards the estate, whether or not the trustees have discretion over who receives it. Tax is only payable if the estate as a whole, including the pot, is above the available thresholds and the money is not going to a spouse, civil partner or charity.

Is death in service subject to inheritance tax?

A death in service lump sum from your current employer's scheme is excluded, provided it is payable only because you were employed there when you died. Lump sums from the schemes of earlier jobs, where you were a deferred member, are counted. A refund of contributions paid alongside the salary multiple is also counted, because that scheme would have paid it in other circumstances.

Does the state pension count towards inheritance tax?

No. The new rules apply to registered pension schemes, qualifying non-UK pension schemes and section 615(3) schemes. The state pension is none of those. It stops on death, and what a surviving spouse or civil partner may be able to inherit from it is governed by separate state pension rules, which GOV.UK sets out.

Does my pension go to my wife when I die, and is it taxed?

On a discretionary scheme the trustees decide who receives it, taking account of the form you completed. Whatever they pay to a wife, husband or civil partner who is a long-term UK resident is exempt from inheritance tax. The full value still has to be reported to HMRC before the exemption is claimed. Anything the trustees pay to other people is counted in the normal way.

I inherited a pension before April 2027. Does the change affect it?

The death you inherited from was taxed under the old rules if it happened before 6 April 2027. But if you kept the money in a beneficiary's drawdown account, whatever remains when you die is added to your own notional pension property, provided your death is on or after 6 April 2027. HMRC's August 2026 note gives a worked example of exactly that.

Sources & further reading

• legislation.gov.uk — Finance Act 2026, section 66 (new s.150A IHTA 1984)
• legislation.gov.uk — Finance Act 2026, section 69 (exemptions)
• legislation.gov.uk — Finance Act 2026, section 71 (commencement)
• GOV.UK — Technical note: Inheritance Tax on pensions
• GOV.UK — Further information on Inheritance Tax and pensions
• GOV.UK — How Inheritance Tax works: thresholds, rules and allowances
• GOV.UK — Inheriting State Pension from a spouse or civil partner
• legislation.gov.uk — Finance Act 2021, section 86 (frozen thresholds)

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).