When do pensions start counting for inheritance tax?

According to GOV.UK, the change applies to deaths on or after 6 April 2027. From then most unused pension funds and death benefits are included in the estate for IHT.

Will my spouse pay inheritance tax on my pension?

The government says the existing exemption for death benefits passing to a surviving spouse or civil partner is being maintained, as is the exemption for registered charities. Other beneficiaries, such as children, could be affected if the estate is above the threshold.

Is death in service cover affected?

No. GOV.UK says death in service benefits paid from registered pension schemes, both discretionary and non-discretionary, are excluded from inheritance tax under the new rules.

Who pays the inheritance tax on a pension?

Personal representatives become responsible for reporting and paying it. Pension schemes will have duties to support them, including a Pensions Direct Payment Scheme that lets tax be paid from the pension.

Can life insurance cover an inheritance tax bill?

A policy written in trust can pay a lump sum straight to chosen beneficiaries, outside the estate, and some families use it to help fund an expected bill. Whether it is worth the premium depends on your estate and the type of policy, so compare the cost against the tax before buying.

Do I need to change anything now?

There is no single required action, but it is sensible to add up your estate, update your pension expression of wish form and check whether existing policies are in trust. Details are still developing, so check GOV.UK or take regulated advice.

Pensions and inheritance tax from April 2027: what it means for life cover

By Denissindependent developer, not a financial adviserPublished 5 October 2026 · How we research these guides

For years, a pension has been one of the most tax-efficient things to leave behind. Unused pension money paid out through a discretionary trust generally sat outside your estate for inheritance tax (IHT), which is why many people spent other assets first and kept the pension for last. That is due to change, and it is why a lot of families are now asking whether their life cover is set up correctly.

What is changing

According to the government's policy paper on GOV.UK, the measure takes effect for deaths on or after 6 April 2027. From that date most unused pension funds and death benefits will be included in the value of the estate for IHT. Today, unused pension funds paid as lump sum death benefits under discretionary provisions are not part of the estate and are not subject to IHT.

Some things do not change, according to the same paper:

Spouses and civil partners. The existing exemption for death benefits passing to a surviving spouse or civil partner is maintained, as is the exemption for registered charities.
Death in service. Death in service benefits payable from registered pension schemes, whether discretionary or non-discretionary, are excluded from IHT. See our guide on whether death in service cover is enough for how those benefits work.

Who reports and pays

Personal representatives, the people dealing with the estate, become responsible for reporting and paying any IHT due on the pension, rather than the pension scheme. The government says scheme administrators will have new duties to support them, including a Pensions Direct Payment Scheme so tax can be paid from the pension itself.

Where there is uncertainty about the value, personal representatives can instruct the administrator to withhold part of the benefit. GOV.UK says beneficiaries would then be able to access only 50% of the benefits that may be subject to IHT, for up to 15 months after the date of death. In practice this is the sort of thing worth knowing about before a bereavement, because it affects how quickly family can reach money.

Why the threshold matters

IHT is only charged on the value of an estate above the nil-rate band. The nil-rate band is £325,000 for 2026/27, and at the 2025 Budget the government said it would stay at that level until April 2031, with the residence nil-rate band and the £2 million taper threshold frozen to the same date, according to law firm and tax-commentary summaries of the Budget. Check the current figures on GOV.UK before relying on any of them.

Because the thresholds are frozen while house prices and pension pots can grow, adding a pension pot to the estate can turn a family that was below the threshold into one above it. Whether that applies to you depends on your whole estate: home, savings, investments, the pension and any life cover that pays into the estate. Our guide on the tax treatment of life insurance explains how a payout can itself be counted.

Where life insurance comes in

This is the connection that matters for this site. A standard life insurance payout that is not written in trust can fall into your estate and add to the IHT bill. Writing the policy in trust is a way of paying it to the people you choose directly. The mechanics are in our guide to putting life insurance in trust for inheritance tax.

Some advisers have discussed using a whole-of-life policy in trust to provide a lump sum that covers an expected IHT bill, because it pays out whenever you die. That is an idea some professionals talk about rather than a universal answer. Whole-of-life premiums are higher than term cover and may be reviewable, so compare the cost of the policy against the tax it is meant to cover. The differences between the two types are set out in term life insurance versus whole of life.

What to do now

You do not need to act on a single date, but a few steps cost nothing:

Add up the estate. Include the pension pot, property, savings and any life insurance not in trust.
Check who your pension beneficiaries are. Your pension provider holds an expression of wish form. Keep it up to date.
Check your policies. See whether existing life cover is written in trust, and who the trustees and beneficiaries are.
Do not assume the rules are final. Details such as how administrators report and how income tax interacts with the new IHT charge are still being worked through, so look at GOV.UK or take regulated advice before changing anything.

One further point is worth flagging, and we have not confirmed the detail here: pension benefits paid to beneficiaries can also be subject to income tax in some cases, notably where the member died after 75. The interaction with the new IHT charge is a question for a tax adviser or the HMRC technical note.

Frequently asked questions

Try the calculator here to see how much life cover your family might need, whatever happens to the pension rules.