Pension Inheritance Tax Changes 2027: What Executors in England Need to Know

One of the largest changes to Inheritance Tax in a generation comes into force in April 2027. From that date, most unused pension funds will be included in a deceased person's estate for Inheritance Tax purposes — ending a planning strategy that has been in place since 2015 and fundamentally changing how many estates are taxed.

If you are an executor or a surviving spouse dealing with an estate that includes significant pension savings, this change directly affects you.

What Changes in April 2027

Currently, defined contribution pension pots (such as personal pensions, SIPPs, and workplace money-purchase pensions) are held in a trust structure that sits outside the deceased's estate. This means they pass to nominated beneficiaries free of Inheritance Tax, regardless of the pension's size.

From April 2027, the government's proposed changes — announced in the October 2024 Autumn Budget — would bring most unused pension funds within the estate for IHT calculations. This means the value of remaining pension funds at death would be added to the total estate value and taxed at 40% above the relevant IHT thresholds, alongside property, cash, and other assets.

The precise mechanism is still subject to HMRC consultation, and the exact scope of affected pension types is being finalised. However, the broad direction is clear: large pension pots that were previously used as a tax-efficient inheritance vehicle will no longer function that way.

Who Is Most Affected

The change primarily affects people with significant defined contribution pension savings — typically above £100,000 — who intended to pass these funds to children or other non-spousal beneficiaries.

Surviving spouses are largely protected in the immediate term. Assets passing between spouses or civil partners on death are generally exempt from Inheritance Tax under the spousal exemption, regardless of which assets are involved. This exemption is expected to continue to apply to inherited pension funds.

However, the change affects what happens when the surviving spouse then dies. If the surviving partner also leaves a large pension unspent, that fund will be drawn into their estate under the new rules.

Executors become jointly liable for reporting and paying IHT on pension funds. Under the proposed mechanism, pension scheme administrators will be required to withhold and report pension fund values to HMRC as part of the estate. Executors will need to work directly with pension providers to establish fund values and coordinate IHT payment — a process HMRC estimates could take up to 15 months to resolve for complex estates.

The Impact on IHT Calculations

Currently, a surviving spouse who inherits a partner's pension pays no IHT. But when that surviving spouse later dies and leaves, say, £400,000 in their own pension plus a £300,000 property and £50,000 in savings, the estate value is currently:

• Property + savings = £350,000 (potentially within nil rate band)
• Pension = £400,000 (currently outside estate, IHT-free)
• Total taxable estate = £350,000

After April 2027:

• Property + savings = £350,000
• Pension = £400,000 (now within estate)
• Total taxable estate = £750,000

With a nil rate band of £325,000 (and potentially a transferable NRB from the deceased spouse adding up to £650,000), the IHT liability depends on whether NRB capacity is available. For many estates that previously sat just under the threshold, the addition of pension funds will push them into liability.

What Families Should Do Now

Review existing pension nominations. The beneficiary nomination on a pension is separate from a will and is not affected by probate. It is worth reviewing current nominations to ensure they reflect current intentions — particularly where nominations name children who might now face an IHT bill on inherited pension funds.

Obtain pension fund valuations. Executors dealing with estates where the deceased died before April 2027 should still document pension fund values as part of good estate administration practice. After April 2027, this becomes a formal HMRC reporting requirement.

Seek specialist advice for large estates. If the combined estate — including pension funds — is likely to exceed the available nil rate band and residential nil rate band, a qualified financial planner or tax adviser should review the estate's exposure. Planning options may include pension drawdown strategies, spousal bypass trusts, or life insurance arrangements to cover anticipated IHT.

Do not make distributions until pension reporting is resolved. After April 2027, if pension funds form part of a taxable estate, executors should not distribute other estate assets until the IHT liability on the pension has been determined and paid. Distributing first and having insufficient funds to settle the IHT bill creates personal liability for the executor.

Defined Benefit Pensions

The 2027 changes are expected to focus primarily on defined contribution (money purchase) pensions. Defined benefit pension schemes (final salary pensions) that pay a survivor's pension to a spouse or civil partner are structured differently. The lump-sum death-in-service payment from a defined benefit scheme may be treated differently — the details of how defined benefit death benefits will be treated post-2027 are still subject to consultation.

Scotland, Wales, and Northern Ireland

Inheritance Tax is a reserved matter — it applies identically across England, Scotland, Wales, and Northern Ireland. The 2027 pension changes will affect estates in all four nations.

The pension IHT changes are among the most significant in the England Survivor Benefits Navigator — which covers the full IHT picture for surviving spouses including transferable nil rate bands, the residential nil rate band, and the documentation executors need when estates include pension assets.

See more England guides →