For years, a pension was one of the best things to leave behind. Most pension funds sat outside your estate, so nobody paid inheritance tax on them. From 6 April 2027 that changes. Most unused pension funds and pension death benefits will count as part of your estate for inheritance tax.
What is changing
- Any money left in your personal pension, SIPP or drawdown plan when you die will count as part of your estate.
- Inheritance tax at 40% may then be due on the part of your estate above your tax-free allowances.
- Pensions left to a husband, wife or civil partner remain free of inheritance tax.
- The change does not affect death-in-service benefits from an employer’s scheme.
- Your executors will be responsible for working out and paying any tax due on your pensions, although they can ask the pension scheme to pay it.
The double tax for those who die after 75
If you die after age 75, whoever inherits your pension already pays income tax when they take money out. From 2027, inheritance tax may be due first, and income tax on what they draw after that. For some families, the combined tax on the pension could be more than half of it.
Questions worth asking now
- Are you spending from the right pot? Many people have left their pension untouched and spent savings and ISAs first, to pass the pension on. That may no longer be the best order.
- Could you give from surplus income? Regular gifts made from income you do not need are free of inheritance tax straight away, as long as you meet the rules. Pension income can count.
- Are your nomination forms up to date? Your pension scheme decides who receives your pension, guided by your nomination. It should match your will and your plans.
- Would life cover help? A whole-of-life policy written in trust can provide money to pay the tax, outside your estate.
- Does your will still work? Wills written under the old rules may not do what you think. Our sister company, Abacus Advice Wills & Estates, explains why in Pensions and inheritance tax from April 2027.
What to do next
The right answer depends on your health, your income needs, your family and the size of your estate. There is no single rule that suits everyone, and you cannot easily undo some changes.
If you would like to talk it through, book a free first meeting. We will look at your pensions alongside your will and your wider estate, and tell you what, if anything, is worth doing.
Written by Mike Hardy DipFA, Abacus Advice Ltd, Tunbridge Wells.
Important information
This article is for general information only and is not personal advice. It reflects our understanding of the rules as at October 2026, which may change. The value of pensions and investments can fall as well as rise. Tax treatment depends on your individual circumstances. The Financial Conduct Authority does not regulate will writing or most tax and estate planning.
Abacus Advice Ltd is authorised and regulated by the Financial Conduct Authority, firm reference number 402725.
