Inheritance Tax changes for pensions
From 6 April 2027, most unused pension funds and pension death benefits will be included in the value of a deceased person’s estate for Inheritance Tax (IHT) purposes. The changes, legislated for in the Finance Act 2026, represent a significant change to the tax treatment of pensions on death.
Individuals with significant pension savings should review their estate plans carefully. Beneficiaries inheriting unused pension funds or death benefits may now face an IHT charge,
Some benefits will remain excluded, including qualifying death-in-service benefits and dependants’ scheme pensions. Existing exemptions, including those for qualifying transfers to a spouse or civil partner, may also apply.
The changes will affect how estates are administered:
- Personal representatives will be responsible for reporting and paying any IHT due on pension funds brought within the estate.
- Pension providers will need to share valuations and beneficiary information to help calculate the tax due.
- Beneficiaries may be jointly and severally liable with personal representatives for IHT attributable to pension benefits they receive.
Taxpayers should consider reviewing their pension arrangements, beneficiary nominations and wider estate plans before April 2027. Keeping clear records of pension schemes and ensuring that personal representatives can identify them may also help simplify estate administration.
