Pensions in scope of Inheritance Tax from April 2027
Most unused pension funds will fall within the Inheritance Tax net from April 2027, ending the long-standing 'death benefit' planning advantage.
By Money Guide editorial team
Published:
From April 2027, most unused defined contribution pension funds will form part of the deceased's estate for Inheritance Tax purposes, ending one of the most generous estate-planning advantages of recent decades.
Under current rules, DC pensions left on death typically pass to nominated beneficiaries free of IHT, with income tax payable only if the saver died after age 75 (and then only as the beneficiary draws funds). From April 2027, the value of unused pension funds will be added to the estate and taxed at 40% above the available nil-rate bands.
The change is expected to drive higher pension drawdown rates among the over-75s and a re-evaluation of inheritance and gifting strategies. Specialist advice is recommended for households with large pension pots and IHT exposure.
Death-in-service benefits paid through registered pension schemes are also in scope. Charity gifts and spouse/civil partner exemptions continue to apply.