UK Pension Inheritance Tax
Calculator — April 2027
From 6 April 2027, unused pension funds count as part of your estate for Inheritance Tax. Compare your IHT bill today vs after the change, see the extra tax the reform adds, and the combined IHT + income tax rate of up to 67% on pensions when death occurs at or after 75.
Read the full answer — method, rates and figures
Quick answer: From 6 April 2027, most unused pension funds and pension death benefits are included in the estate for UK Inheritance Tax and taxed at 40% above the nil-rate bands (Finance Act 2026, Royal Assent 18 March 2026; HMRC technical note 11 May 2026). Bands frozen to April 2031 (Autumn Budget 2025, 26 November 2025, extended the freeze a further year from April 2030): NRB £325,000; RNRB £175,000 (main residence to direct descendants, tapered £1 per £2 above £2M estate — pensions now count toward that £2M test); both transferable between spouses, up to £1M combined.
Excluded: death-in-service benefits from registered schemes and dependants' scheme pensions from DB or collective money purchase arrangements. Spouse/civil-partner transfers stay 100% exempt.
Deaths at/after 75: beneficiaries ALSO pay income tax at their marginal rate on withdrawals — combined effective rate on the pension up to 67% (40% IHT, then 45% on the remaining 60%); 64% for higher-rate and 52% for basic-rate beneficiaries. Deaths before 75: withdrawals income-tax-free within the £1,073,100 LSDBA, so the pension bears IHT only.
HMRC expects ~10,500 newly liable estates and ~38,500 paying more in 2027-28, average extra ~£34,000. Personal representatives (not schemes) report and pay.
Source: gov.uk Inheritance Tax on pensions technical note.
Property + savings + ISAs + investments + personal effects. Exclude your pension — enter that below.
SIPPs + workplace DC pots + drawdown funds left unspent. Outside IHT today; inside from 6 April 2027.
Doubles the bands to £650k NRB + £350k RNRB (£1M combined) — assumes the first spouse's allowances were fully unused, e.g. everything passed to the survivor.
Required for the £175,000 RNRB (£350,000 combined). Assumes the home is worth at least the RNRB claimed. Tapers £1 per £2 above a £2M estate — and from 2027 the pension counts toward that £2M test.
Before 75: beneficiaries' withdrawals are income-tax-free within the £1,073,100 LSDBA. At/after 75: withdrawals are taxed at the beneficiary's marginal rate — on top of IHT from 2027.
Applied to withdrawals from the inherited pension (death at/after 75).
IHT Bill Today
£0
pension outside the estate
IHT From 6 April 2027
£160,000
pension inside the estate
Extra Tax From the Change
£160,000
40.0% of your pension
Total Tax on Pension (2027)
64.0%
IHT + 40% income tax combined
Save your pension IHT estimate
Richify tracks your pension and estate together, so you can see this bill change before April 2027.
Extra tax from the change
£160,000
IHT bill today
£0
IHT from April 2027
£160,000
Total tax on pension
64.0%
Today — deaths before 6 April 2027
- • Estate for IHT: £500,000 (pension excluded)
- • Nil-Rate Band: £325,000
- • Residence NRB: £175,000
- • Taxable: £0
- • IHT: £0
- • Beneficiary income tax on pension (40%): £160,000
From 6 April 2027 — pension included
- • Estate for IHT: £900,000 (£500,000 + £400,000 pension)
- • Nil-Rate Band: £325,000
- • Residence NRB: £175,000
- • Taxable: £400,000
- • IHT: £160,000
- • Beneficiary income tax on remaining pension (40%): £96,000
The double tax on your pension, step by step (death at/after 75, from 2027)
- • Unused pension pot: £400,000
- • Step 1 — IHT the pension adds to the estate bill: £160,000 (40.0% of the pot)
- • Pension remaining after IHT: £240,000
- • Step 2 — income tax at the beneficiary's 40% marginal rate on withdrawals: £96,000
- • Total tax on the pension: £256,000 — an effective 64.0%
- • For comparison, today the same pot loses only income tax: £160,000 (40.0%)
⚠ Worst case: pension fully above the bands, additional-rate beneficiary, death at/after 75 → 40% IHT takes £40 of every £100, then 45% income tax takes £27 of the remaining £60 — £67 of every £100 gone (67%). Higher-rate: 64%. Basic-rate: 52%.
Will my pension pay inheritance tax from 2027?
Yes, if you die on or after 6 April 2027 with an unused pension and your total estate — pension included — exceeds your nil-rate bands (£325,000, up to £1 million for couples using both transferable allowances), the excess is taxed at 40%. HMRC expects roughly 10,500 estates to become newly liable and 38,500 to pay more in 2027-28, with the average bill rising by about £34,000. The change is law: Finance Act 2026 received Royal Assent on 18 March 2026, and HMRC published its technical note on 11 May 2026 (GOV.UK, “Inheritance Tax on pensions: technical note”).
Two things do NOT change. First, anything left to a spouse or civil partner — including the pension — remains 100% exempt. Second, death-in-service benefits from registered schemes and dependants' scheme pensions from defined benefit (or collective money purchase) arrangements stay outside IHT entirely. What changes is the treatment of unspent pots: a SIPP or drawdown fund that would pass IHT-free today is counted like any other asset from April 2027, and it also counts toward the £2 million threshold where the £175,000 Residence Nil-Rate Band starts to taper away.
The sting is sharpest for deaths at or after age 75, because beneficiaries already pay income tax at their marginal rate on withdrawals. From 2027 the same pound can be hit by 40% IHT first and then 20%, 40% or 45% income tax on what is left — a combined effective rate of 52%, 64% or 67%. Use the calculator above to see your own before-and-after numbers, and our full UK Inheritance Tax calculator for the whole-estate picture including gifts and the charity 36% rate.
What exactly changes on 6 April 2027 — and what stays out
Under current rules, most defined-contribution pensions are written under discretionary trusts, which keeps them outside the estate for IHT — the quirk that made “spend everything else first, leave the pension” standard estate-planning advice. From 6 April 2027, unused pension funds and most lump-sum death benefits are included in the estate regardless of trustee discretion, and personal representatives (not pension scheme administrators) are responsible for reporting and paying the IHT due. The government's stated aim is to stop pensions being used primarily as a wealth-transfer wrapper rather than for retirement income.
| From 6 April 2027 | IHT treatment |
|---|---|
| Unused DC pots (SIPP, workplace DC, drawdown funds) | Inside the estate — 40% above bands |
| Most other lump-sum death benefits | Inside the estate |
| Death-in-service benefits (registered schemes) | Excluded — outside IHT |
| Dependants' scheme pensions (DB / collective money purchase) | Excluded — outside IHT |
| Anything passing to a spouse or civil partner | 100% exempt — unchanged |
Sources: GOV.UK, “Inheritance Tax on pensions: technical note” (published 11 May 2026); “Inheritance Tax on unused pension funds and death benefits” policy paper; Autumn Budget 2024 (30 October 2024). Finance Act 2026 amended IHTA 1984, FA 2004 and ITEPA 2003 to bring the reform into effect for deaths on or after 6 April 2027.
The hidden second hit: your pension can erode the £175,000 RNRB
The Residence Nil-Rate Band tapers away by £1 for every £2 the estate exceeds £2 million, disappearing entirely at £2.35 million (£2.7 million for a couple claiming £350,000). Because the taper test uses the value of the whole estate, adding a pension from April 2027 can drag an estate over the £2 million line even though nothing else changed. Example: a £1.8 million non-pension estate with a £500,000 SIPP is untapered today, but from 2027 it is a £2.3 million estate — £300,000 over the threshold — losing £150,000 of RNRB and adding £60,000 of IHT on top of the tax on the pension itself. This calculator runs the taper test separately for each scenario and flags when the pension alone is what triggers it. Larger estates near the threshold feel the change twice: once on the pot, once on the lost residence allowance.
Planning considerations before April 2027
These are commonly discussed responses to the change — educational scenario notes, not modelled outputs and not recommendations. Each has genuine trade-offs and depends on health, income needs and the rest of your estate.
Gifts out of surplus income
The normal-expenditure-out-of-income exemption is untouched by the reform and has no seven-year clock: regular gifts are immediately outside your estate if they come from income (pension drawdown income counts), form a settled pattern, and leave your standard of living intact. Someone drawing more pension than they spend could gift the excess each month — reducing both the pot that faces 40% IHT from 2027 and the income tax their heirs would pay on it after 75. Record-keeping matters (executors claim it on form IHT403), and drawing extra income to gift means paying income tax on the way out at your own rate first — speak to a regulated adviser.
Spending the pension first instead of last
The pre-2027 playbook — spend ISAs and taxable savings first, preserve the IHT-free pension — often reverses once the pension becomes the most heavily taxed asset at death (up to 67% combined for post-75 deaths vs 40% on other assets). Drawing pension income earlier at 20% or 40% and leaving ISAs or property to heirs can cut the family's total tax bill, but it accelerates your own income tax, can push you into higher bands, and risks exhausting the pot if you live longer than expected — speak to a regulated adviser.
Buying an annuity
An annuity converts the pot into guaranteed lifetime income, so there is no “unused fund” left to be taxed at death — and a dependant's annuity or guaranteed period can protect a partner. With annuity rates far higher than in the 2010s, this trade-off looks better than it has in years. The costs: you give up flexibility and inheritance upside entirely, the income itself is taxable and (if unspent) rebuilds your taxable estate, and single-life annuities leave nothing for children — speak to a regulated adviser.
This calculator is for education only and is not financial, tax or legal advice. It simplifies deliberately: it assumes full transferable allowances for couples, a qualifying residence worth at least the RNRB claimed, no lifetime gifts, charity bequests, business/agricultural relief or trusts, and beneficiary withdrawals all at one marginal rate. IHT rules can change at any Budget — bands are currently frozen to April 2031 (Autumn Budget 2025 extended the earlier April 2030 freeze by a year), and the pension rules described here take effect for deaths on or after 6 April 2027 under Finance Act 2026. Figures: GOV.UK “Inheritance Tax on pensions: technical note” (11 May 2026), HMRC policy costings (Autumn Budget 2024) and Autumn Budget 2025 (26 November 2025). Last updated: 30 July 2026. Verify the current position on gov.uk and speak to a regulated financial adviser or STEP-qualified solicitor before acting on your own estate.
Last reviewed 10 October 2026 by the Richify AI agent team.
Reviewed by Felix, Richify's AI CFO — an AI author, presented as one.
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This tool models one specific change: from 6 April 2027, most unused pension funds and pension death benefits count as part of your estate for Inheritance Tax (Finance Act 2026; HMRC technical note, 11 May 2026). It calculates your position twice:
- Today (deaths before 6 April 2027) — the pension sits outside the estate. IHT at 40% applies only to the non-pension estate above your nil-rate bands.
- From 6 April 2027 — the pension is added to the estate. It is taxed at 40% above the bands AND counts toward the £2M threshold where the £175k Residence Nil-Rate Band tapers away (£1 lost per £2 over).
- The post-75 double layer — beneficiaries pay income tax at their marginal rate on withdrawals from an inherited pension when death occurs at or after 75. Stacked on 40% IHT, the combined effective rate reaches 52% / 64% / 67% for basic / higher / additional-rate beneficiaries.
Exclusions confirmed by HMRC: death-in-service benefits from registered schemes and dependants' scheme pensions from defined benefit (or collective money purchase) arrangements stay outside IHT. Transfers to a spouse or civil partner remain fully exempt. Sources: GOV.UK “Inheritance Tax on pensions: technical note” (11 May 2026); Autumn Budget 2024 policy costings.
This page complements our full UK Inheritance Tax calculator, which models the whole estate — 7-year gift taper, charity 36% rate and transferable allowances. Use that one for your complete IHT picture, and this one to isolate what the 2027 pension change costs you.
How to use this calculator
- Enter your non-pension estate value — property, savings, ISAs, investments and personal effects, but NOT your pension. This is what IHT is tested on today.
- Enter your unused pension pot — the total across SIPPs, workplace DC pots and drawdown funds you expect to leave unspent. From 6 April 2027 this is added to your estate.
- Tick married/civil partnership to use the full transferable allowances (£650k NRB + £350k RNRB on second death), and tick the sub-option if everything passes to your spouse first (fully exempt).
- Tick whether your main home passes to direct descendants — required for the £175,000 RNRB (£350,000 combined). The calculator handles the £1-per-£2 taper above £2 million, which the pension itself can now trigger.
- Pick your age-at-death band and your beneficiary's marginal income tax rate. At or after 75, beneficiaries also pay income tax on withdrawals — the calculator shows the combined IHT + income tax rate on the pension, step by step.
❓ Frequently Asked Questions
Are pensions subject to inheritance tax in 2026?
Generally no — for deaths before 6 April 2027, unused defined-contribution pension funds (SIPPs, workplace DC pots, drawdown funds) held under discretionary trustee rules sit outside your estate for Inheritance Tax. That is exactly why pensions became a favoured wealth-transfer wrapper: the standard advice was to spend ISAs and other assets first and leave the pension untouched.
Income tax can still apply: if you die at or after age 75, beneficiaries pay income tax at their own marginal rate on withdrawals; if you die before 75, withdrawals are usually income-tax-free provided lump sums fall within the £1,073,100 Lump Sum and Death Benefit Allowance (LSDBA) and funds are designated within two years. This IHT shelter ends for deaths on or after 6 April 2027 under Finance Act 2026.
What changes on 6 April 2027?
For deaths on or after 6 April 2027, most unused pension funds and pension death benefits are included in the value of the estate for Inheritance Tax, and taxed at 40% above the nil-rate bands (£325,000 NRB + £175,000 RNRB where available). The change was announced at Autumn Budget 2024, legislated in Finance Act 2026 (Royal Assent 18 March 2026), and detailed in HMRC's technical note of 11 May 2026.
Personal representatives — not pension scheme administrators — are liable for reporting and paying the IHT due on pension assets. HMRC estimates that in 2027-28 around 10,500 estates will become newly liable for IHT and around 38,500 will pay more than before, with the average IHT liability rising by roughly £34,000 where pension assets are included.
Because the pension also counts toward the £2 million RNRB taper test, some estates lose residence allowance too.
Does my spouse pay IHT on my pension?
No. Transfers to a UK-domiciled spouse or civil partner remain 100% exempt from Inheritance Tax, and the April 2027 change does not alter that. If your unused pension passes to your spouse or civil partner, no IHT is due on it at your death — whatever its size.
Your unused nil-rate band and residence nil-rate band also transfer, giving the survivor up to £650,000 NRB + £350,000 RNRB (£1 million combined) on the second death. The IHT question is therefore usually deferred, not avoided: when the surviving spouse dies, whatever remains of the pension (plus the rest of the estate) is tested against the combined allowances.
Note that income tax is separate — a surviving spouse drawing from an inherited pension still pays income tax at their marginal rate if the original owner died at or after 75.
What is the double tax on pensions after 75?
If you die at or after age 75, your beneficiaries already pay income tax at their own marginal rate (20%, 40% or 45%) on money they draw from the inherited pension. From 6 April 2027 the pot can also suffer 40% IHT first.
Worked example on £100,000 of pension above the nil-rate bands, left to an additional-rate (45%) taxpayer: IHT takes £40,000, leaving £60,000; income tax at 45% on withdrawals takes another £27,000; total tax £67,000 — an effective rate of 67%. For a higher-rate (40%) beneficiary the combined rate is 64% (£40,000 + £24,000), and for a basic-rate (20%) beneficiary it is 52% (£40,000 + £12,000).
Deaths before 75 avoid the income tax layer (within the LSDBA), so the pension bears IHT only.
Is death-in-service included in the new rules?
No. HMRC's technical note (11 May 2026) confirms two exclusions from the April 2027 changes: death-in-service benefits payable from a registered pension scheme, and dependants' scheme pensions paid from a defined benefit arrangement (or a collective money purchase arrangement). Both remain outside the scope of Inheritance Tax.
So a lump sum of, say, four times salary paid by your employer's registered scheme because you died while employed is not swept into your estate, and a widow's or dependant's ongoing DB pension is untouched. What IS included from 6 April 2027 is the unused pension fund itself — the DC pot you had not spent — and most other lump-sum death benefits.
If a large part of your family's protection is death-in-service cover, the 2027 change may affect you less than headlines suggest.
How can I reduce pension IHT before 2027?
Planning levers people commonly review with an adviser: (1) Spend the pension earlier — the old "pension last" drawdown order often reverses after April 2027, since pension money may now be the most heavily taxed asset at death (up to 67% combined post-75). (2) Regular gifts out of surplus income — an existing IHT exemption with no seven-year clock, useful for gifting pension drawdown income you do not need, provided gifts are habitual, from income, and leave your standard of living intact. (3) Seven-year-rule gifts of withdrawn lump sums (income tax applies on the way out first). (4) Buying an annuity converts the pot into lifetime income (and a taxable estate builds only from what you save of it). (5) Leaving the pension to your spouse defers IHT to the second death. Every route has trade-offs — speak to a regulated financial adviser before acting.
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Further Reading
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