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Wills · 4 min read · Published

Pension pots and inheritance tax: what changes in April 2027

From 6 April 2027, unused pension pots count as part of your estate for inheritance tax. If you assumed your pension would pass tax-free, this guide explains what changes for your family.

By Aaron Johnson, Consultant Solicitor and TEP, a solicitor in Bridlington who writes every guide himself.

This guide is general information about the law of England and Wales, not legal advice. Each case is assessed on its own merits.

Guides · Wills · No. 9 of 18Published · 4 minutes

The rule everyone assumed would never change

For years, unused pension savings sat in a category of their own. When someone died before drawing their full pension, the pot passed to their family outside the estate and outside inheritance tax. Many families built retirement and estate plans around that assumption.

From April 2027, that changes.

Finance Act 2026 has now made this law. For deaths on or after 6 April 2027, most unused pension funds and pension death benefits will come within inheritance tax. If your pension is unspent when you die, it will count as part of your estate. The nil-rate band that protects the first £325,000 of your estate will then have to stretch across everything: house, savings, investments, and now your pension.

What exactly is changing

Under the current rules, most pension pots fall outside your estate. There is no inheritance tax charge, and you can nominate who receives the funds with relative freedom. That remains the position until 5 April 2027.

From 6 April 2027:

  • Unused defined contribution pension pots (the kind most people have through workplace or personal pensions) will be included in your taxable estate.
  • Your personal representatives will report and pay the tax. The pension scheme must give them the value of the pot when they ask. Where the tax is at least £1,000, they can usually require the scheme to pay it to HMRC from the pension.
  • The nil-rate band remains frozen at £325,000 until at least April 2031. It does not increase to allow for the new rules. The allowance that used to cover your house and savings now has to cover your pension too.
  • The residence nil-rate band (up to £175,000 where the family home passes to children, grandchildren or other direct descendants) is unchanged. It will be set against the whole estate, pension included. But the pension will also count towards the £2 million limit above which this band is reduced. A large pension can reduce or remove it.
  • The usual exemptions still apply. A pension passing to a spouse or civil partner is exempt, as other assets are. Death in service benefits from a registered pension scheme are excluded.

The effect is that the tax-free buffer is thinner at exactly the moment pension wealth becomes taxable.

Why this matters more than it seems

Many people who sit comfortably under the threshold today will be above it once the pension is added.

Suppose a single person has a house worth £450,000, savings of £60,000 and a pension pot of £180,000, and leaves the home to a child. They have no allowance passed on from a late spouse and have made no large gifts in the last seven years. Under the old rules the pension is ignored for inheritance tax. The estate is £510,000. With the nil-rate band and residence nil-rate band combined (£500,000), the tax is £4,000.

Under the new rules the same estate is £690,000. The excess over the combined £500,000 is £190,000, and at 40% the tax is £76,000, against £4,000 before. This is not a rare or extreme example.

How inheritance tax applies to an estate

Change the size of an estate and see which allowance covers each part.

See how it works

What families are doing to prepare

A few approaches come up consistently.

Reviewing nominations on pension pots. You can still nominate who receives your unused pension, and who that is matters for planning. Ask your pension provider for your nomination form and check it. Many people have not touched it since they joined the scheme.

Looking at spend-down strategies. Some financial advisers now recommend drawing on pension savings more actively in retirement, and leaving other assets, such as ISAs, to grow instead. Money drawn from a pension and kept as savings still counts in your estate. This affects your income for life and needs regulated financial advice.

Discretionary trusts. A discretionary trust in a will gives the trustees control over who receives what, and when. It can help manage the combined effect of these changes, but it has tax costs too. A home left on a discretionary trust does not qualify for the residence nil-rate band. Assets left to it do not get the spouse exemption, even if your spouse can benefit. If a trust has been on your mind, April 2027 makes that conversation more pressing.

Updating wills. A will drafted when pensions sat outside the estate may now be out of step with your wishes and your tax position. If yours was last reviewed more than two or three years ago, it is worth another look.

Red wax seal on a white envelope on a wooden table

A note on timing

April 2027 is close. Pension reviews, trust drafting and will updates all take time.

Waiting a little longer is not a disaster, but the time to prepare is running down.

Unsure where your pension sits in your overall estate? A short conversation is a sensible first step. Aaron will talk it through. The first call is free, with no obligation.

Sources

The official pages behind the rules this guide explains. Each was checked on .

  1. Inheritance Tax: unused pension funds and death benefits

    GOV.UK

  2. Finance Act 2026, section 66: Tax to be charged on certain pension interests

    legislation.gov.uk

  3. Finance Act 2026, section 68: Withholding of benefits and payment of tax by pension scheme administrator

    legislation.gov.uk

  4. How Inheritance Tax works: thresholds, rules and allowances: Passing on a home

    GOV.UK

Written by Aaron Johnson, Consultant Solicitor and TEP · Law of England and Wales as at 4 May 2026 · Ends

Questions people ask about this.

General answers for England and Wales. What applies to you depends on your circumstances.

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

Yes, if you have an unused defined contribution pension pot when you die on or after 6 April 2027, its value will be included in your taxable estate. The nil-rate band (£325,000) applies across your whole estate including the pension. This covers most workplace and personal pensions that remain unspent at death. A pension passing to a spouse or civil partner is exempt.

Does this affect defined benefit or final salary pensions?

The changes mainly affect defined contribution pots, where you build up a personal fund over time. Defined benefit (final salary) pensions work differently and the rules do not apply in the same way to every benefit they pay. Death in service benefits from a registered pension scheme are excluded. Check with your scheme or a financial adviser who can look at your specific pension.

Can a discretionary trust help reduce the inheritance tax on my pension?

A discretionary trust can form part of a wider estate plan that responds to the new rules, but it is not a simple fix. Whether it helps depends on your overall estate, your family circumstances and how your pension is structured. Aaron can explain whether a trust makes sense alongside your will.

What if I spend down my pension before I die?

If the pension is spent, as income or lump sums, it is no longer a pension asset caught by the new rules. Money you draw and keep as savings still forms part of your estate. Some people are drawing on pensions more readily in retirement and preserving other assets, such as ISAs, instead. A regulated financial adviser can model which approach suits you.

Should I update my will before April 2027?

It may be worth reviewing your will if it was drafted before this change was announced in October 2024. Whether it needs to change depends on your circumstances. Your estate's inheritance tax position may have shifted significantly with pension assets in scope. An updated will can also work together with your pension nominations and any trust you put in place.

Next step

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Important

This guide contains general information about the law of England and Wales as at May 2026. It is not legal advice and should not be relied on in place of advice on your own circumstances. Wills, inheritance and intestacy law change often; check any specific point before acting on it. Outcomes for any one person depend on their facts, the documents, and decisions taken by HMRC, the courts and others. Fees shown are fixed once agreed in writing, before any work starts. Safe Harbour Legal and Legal Studio Solicitors are trading names of MDLS Solicitors Limited (company number 08599445), authorised and regulated by the Solicitors Regulation Authority, SRA 598793. The complaints procedure is at legalstudio.co.uk/sra-complaints (Legal Studio's website).