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HMRC Publishes Technical Note on Inheritance Tax Changes for Pensions
May 12, 2026
HMRC has published a technical note setting out further detail on how inheritance tax (IHT) changes for pensions will work from 2027.
The underlying changes were confirmed when the Finance Act 2026 received Royal Assent on 18th March 2026. From 6th April 2027, most unused pension funds and pension death benefits will be included in the value of someone’s estate when they die. This is a significant change to the current rules, under which many pensions can be passed to beneficiaries without an inheritance tax charge.
Which pensions will be affected?
The new rules will cover most defined contribution pensions, including personal pensions and Self-Invested Personal Pensions (SIPPs).
Money left in workplace defined contribution schemes will also usually be included. This applies to pension savings that haven’t been accessed, as well as funds remaining in drawdown. Some lump sum death benefits from defined benefit pensions could also fall within the estate.
The changes will apply to deaths on or after 6th April 2027. The current rules will still apply where someone dies before this date, even if the benefits are paid later.
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Some pension benefits will remain exempt
Not every pension benefit will be brought within the inheritance tax rules. Death in service benefits paid by a registered pension scheme will remain outside the estate. Regular pension income paid to a dependant will also be excluded. Joint life annuities purchased alongside a member’s own lifetime annuity will also remain outside the estate, provided they continue to be paid to the surviving joint annuitant.
Benefits left to a spouse or civil partner will continue to qualify for the existing inheritance tax exemption. Pension funds left to a qualifying charity will also remain exempt.
Who will report and pay the tax?
Personal representatives, usually the executors or administrators of an estate, will be responsible for reporting pension values to HM Revenue & Customs (HMRC). They’ll also need to calculate and pay any inheritance tax due. Pension beneficiaries may become jointly liable once they’re entitled to receive the funds.
New processes will allow personal representatives to ask pension schemes to hold back up to 50% of the benefit, for up to 15 months after the end of the month after death, while the tax position is confirmed. They’ll also be able to direct a pension provider to pay the tax to HMRC from the pension fund.
How many estates could be affected?
The government expects most estates will continue to have no inheritance tax liability.
It estimates that around 10,500 estates could pay inheritance tax for the first time in 2027/28. A further 38,500 estates may face a higher bill.
The average increase is expected to be around £34,000 where pension assets bring more of the estate into the inheritance tax calculation.
HMRC will publish further guidance and supporting tools before the changes take effect in April 2027.
For more information, read HMRC’s technical note on inheritance tax and pensions.
Important information
The information on this page is for general guidance only and does not constitute personal financial advice. We recommend seeking advice tailored to your individual circumstances before making financial decisions.