From April 2027 your kids will pay inheritance tax on the pension you leave behind
Key Points
- Unused pension pots move inside the inheritance tax estate from April 2027, a fundamental change to how wealth is assessed at death in the UK
- April 2026 IHT receipts were £0.70 billion, £65 million lower year on year, but the dip is widely expected to be the last before pensions enter scope
- Frozen nil-rate bands (£325,000 main, £175,000 residence) combined with rising property values are already pulling more middle-class estates into IHT
- Quilter Cheviot warns receipts will rise sharply from April 2027 and current figures will look modest in hindsight
- Early estate planning, gifting allowances and a holistic view of wealth are now critical for savers with pension assets
Unused pension pots will fall inside the inheritance tax estate from April 2027.
The change ends decades of pensions sitting outside IHT and is expected to pull millions of middle-class savers into a tax that was once paid only by the very wealthy.
Inheritance Tax receipts for April 2026 came in at £0.70 billion, £65 million lower than the same month last year and a rare drop in an otherwise relentless upward trend.
The dip is set to be the last of its kind. From the start of the 2027 tax year, pensions move into scope and the receipts line is expected to rise sharply.
Pensions have for years been one of the most efficient estate-planning tools available to UK savers.
Defined contribution pots passed to a nominated beneficiary have sat entirely outside the taxable estate, meaning a saver could die with a substantial pension untouched by IHT while smaller estates with no pension wealth paid the 40% rate on amounts above the nil-rate band. That asymmetry disappears in April 2027.
In one case, a saver with a £400,000 unused defined contribution pot passed to a non-spouse beneficiary would, under the new rules, see that pot added to the rest of the estate for IHT purposes.
With the nil-rate band frozen at £325,000 and the residence nil-rate band at £175,000, a pension that previously passed outside the estate could push a previously non-taxable estate into 40% territory on the excess. The same saver under the current regime would have paid nothing on the pension element.
“Pensions have long been one of the largest assets held outside the estate, and bringing them into scope significantly increase the number of people paying what was once a tax for the very wealthy,” said Rachael Griffin, Tax and Financial Planning Expert at Quilter.
She noted that the April 2026 receipts figure marks an important milestone as the final April in which pension wealth remains outside the scope of IHT.
Frozen thresholds and rising property values are compounding the effect. The nil-rate band has sat at £325,000 since 2009 and is locked there until 2030, while average UK house prices have roughly doubled over the same period, dragging more estates above the threshold every year without a single rate being raised.
The Office for Budget Responsibility has previously forecast IHT receipts will continue to climb through the decade, and the pension change accelerates that curve significantly.
Behavioural change is already expected ahead of the April 2027 deadline. Savers with large unused pots are likely to accelerate drawdown, increase gifting from pension income, or restructure beneficiary nominations in the run-up to the change.
Each route carries its own tax and longevity risk, and none replaces the planning value pensions previously offered as an estate vehicle.
“Next tax year, IHT receipts are expected to rise sharply, with these figures likely to look modest in hindsight,” Griffin said.
“Combined with frozen thresholds and ongoing pressure from property values, the trajectory for IHT remains firmly upwards, placing even greater emphasis on early and proactive estate planning. Making use of the meagre but still useful gifting allowance and taking a holistic view of your wealth remains paramount.”
