Answers · UK 2025/26
Are UK pensions becoming subject to Inheritance Tax in 2027?
Yes. From 6 April 2027 (Autumn 2024 Budget announcement) most UK pension pots passing on death will be included in the deceased's estate for Inheritance Tax — closing a major IHT planning route used by pension savers since the 2015 pension freedoms.
Full answer
UK pension Inheritance Tax changes announced in the Autumn 2024 Budget, effective 6 April 2027. Until April 2027: most defined-contribution pension pots are outside the estate for IHT — beneficiaries pay only Income Tax (if death after age 75) or take tax-free if death before age 75 (within LSDBA £1,073,100). From 6 April 2027: most pensions will be included in the deceased's estate. Estate IHT (40% above £325,000 NRB + £175,000 RNRB) applies on the pension value; beneficiaries then pay Income Tax on withdrawals (if death after 75). Effective tax rate on bequeathed pensions could approach 64-67% for higher-rate beneficiaries on estates above the NRB. Exclusions (per current proposals): bona fide death-in-service lump sums; dependents' scheme pensions; charity transfers. Strategic responses being considered: drawing down pensions earlier (despite the tax cost), gifting (7-year rule), buying lifetime annuities (no estate value), increasing ISA balances. Legislation will be consulted on in 2025; details may change before 2027. CONSULT a regulated adviser before acting — these are complex changes still being finalised.
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This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.