Pensions and Inheritance Tax from April 2027: What Executors Need to Know Now

What is changing from April 2027?

Under the current rules (before April 2027), most pension death benefits — whether paid as a lump sum or as continuing pension payments to a dependant — fall outside the deceased's estate for IHT purposes. This is why pensions have become a popular tool for passing wealth to the next generation: they avoid both probate and inheritance tax.

From April 2027, this exemption is removed for unused pension funds. Specifically:

• Unspent funds in defined contribution pensions (personal pensions, SIPPs, workplace pensions with remaining funds) will be included in the taxable estate at the date of death
• The pension fund value is added to all other estate assets; IHT at 40% applies to the total above the available nil-rate bands
• The personal representatives must report the tax attributable to each pension scheme and are liable to pay it; beneficiaries are jointly liable for the tax on benefits they receive
• The spouse, civil partner and charity exemptions continue to apply, so a pension left to a surviving spouse or civil partner is exempt

Who is affected?

These changes primarily affect estates where the deceased held a defined contribution pension with remaining unspent funds at the time of death. This includes:

• Personal pension plans
• Self-Invested Personal Pensions (SIPPs)
• Workplace pension schemes where the member had not yet drawn down all their funds

Defined benefit (final salary) pensions work differently: they typically pay a spouse's or dependant's pension rather than a lump sum. Dependants' scheme pensions from a defined benefit or collective money purchase arrangement are excluded from the change, as are death in service benefits payable from a registered pension scheme.

Money left in drawdown counts too: the value brought in is what was in the arrangement immediately before death and could be used to provide death benefits.

HMRC estimates that in 2027 to 2028, of roughly 213,000 estates with inheritable pension wealth, 10,500 will have an inheritance tax bill they would not otherwise have had, and 38,500 will pay more than they would have done. The average liability is expected to rise by around £34,000 where pension assets are brought in.

The withholding mechanism: up to 50% for up to 15 months

The mechanism is not something the pension scheme decides on its own. It is triggered by a withholding notice from the personal representatives — or, before a grant, from a prospective personal representative — who know or have reason to believe that inheritance tax may be due. Under a valid notice:

• The scheme holds back up to 50% of each beneficiary's share of the death benefits
• For up to 15 months after the end of the month in which the member died
• Until the personal representatives withdraw the notice, the tax is paid, or the 15 months run out — whichever comes first

Payments to an exempt beneficiary (a spouse or civil partner, or a charity) and excluded benefits such as death in service are not withheld. Where no notice is served — including where no inheritance tax is due — none of this applies and the scheme pays out as normal.

A separate payment notice lets the personal representatives, or a beneficiary, direct a registered scheme to pay a stated amount of the tax to HMRC out of the pension, so the tax never has to be found from the rest of the estate.

If you are a beneficiary and need money sooner

The 50% limit applies only to the pension, and only while a withholding notice is in force. It does not touch the rest of the estate: bank accounts, ISAs and other assets follow the usual probate rules. If waiting is causing hardship, talk to the personal representatives — they can withdraw the notice once the tax is paid or no longer expected — and check whether Bereavement Support Payment or another benefit applies.

Income tax on top: the age-75 rule

Inheritance tax is not the only tax on an inherited pension, and the April 2027 change does not alter the income tax rules. HMRC's technical note sets out the position:

• The member died before 75: income from survivors' annuities and dependants' drawdown is usually tax-free, as are lump sum death benefits if the member's lump sum and death benefit allowance has not been exceeded.
• The member died at 75 or over: all death benefits are taxable as the beneficiary's income.

So from 6 April 2027 the same money can be inside the estate for inheritance tax and also taxed as income when it is drawn. HMRC has said one thing to soften this: where inheritance tax is paid on death benefits, the part of the benefits matching the tax (and interest) paid does not count towards the beneficiary's taxable income. Its third technical note, due in autumn 2026, is to cover how the two taxes interact in full, so the detail may still change.

New executor responsibilities from April 2027

The April 2027 changes place the reporting and payment duty on the personal representatives. Under the new rules they will need to:

1. Notify all pension providers of the death promptly. The executor needs to identify all pensions held by the deceased and notify each provider. HMRC expects “reasonable steps” to find every scheme — our guide to finding a deceased person's lost pensions sets out what that looks like. The 15-month withholding window runs from the end of the month of death, not from the date you make contact, so delay eats into it.
2. Obtain pension fund values as at the date of death. Each pension provider will need to confirm the fund value at the date of death, which forms part of the IHT calculation.
3. Include pension funds in the IHT return (IHT400). The pension values must be declared as part of the estate on the IHT400 form.
4. Report the tax attributable to each scheme, and pay it. The personal representatives may direct a scheme to pay that tax from the pension instead. Where they have made every effort to trace the deceased's pensions, they can be discharged from liability for a pension found after clearance.

This is a considerably more complex process than the rules that applied before, and HMRC has said further guidance — including on how inheritance tax and income tax interact on inherited pensions — is still to come.

What HMRC's second technical note (27 August 2026) adds

HMRC's first technical note (11 May 2026) set out who is liable and the withholding and payment mechanisms. The second, published on 27 August 2026, is the operating manual: it explains the information regulations laid on 15 July 2026 (SI 2026/818) and gives the deadlines every scheme must meet once a personal representative gets in touch. For an executor the useful parts are:

• Proving who you are. Before a grant, a scheme can accept a certified copy of the will, the death certificate, matching ID and a signed declaration that you have accepted the appointment. Where there is no will, a prospective administrator gives the death certificate, ID, a signed declaration and evidence of their entitlement. Once one scheme has accepted your evidence it covers every later stage with that scheme. HMRC's draft declaration wording is in Annex A of the note.
• Basic information within 28 days. On a valid request, the scheme must give the scheme name, the value of the “notional pension property” at death, and the proportion expected to go to exempt beneficiaries, within 28 days of receiving the request. If it can only estimate, it must say so and send the final figure within 14 days of knowing it.
• Beneficiary detail only if an IHT account is needed. Names, addresses, National Insurance numbers and the amount going to each beneficiary come on a second request, due within 28 days or 14 days after the scheme has decided who benefits, whichever is later.
• Withholding notice deadlines. The scheme confirms the notice is valid within 14 days, tells you how much it is holding within 28 days, and tells the beneficiaries within 14 days. A scheme that ignores a valid notice becomes jointly liable for the tax on those benefits. A template is at Annex B.
• Payment notices: £1,000 minimum, 35 days. A notice must be for at least £1,000, cannot exceed the tax and interest actually due, and the scheme must pay HMRC within 35 days of receiving it. It can be served before the grant issues, but not by a prospective personal representative; a beneficiary can serve one for their own share. Only registered pension schemes are covered. Template at Annex C.
• Income tax reporting. Where a lump sum death benefit is paid, the scheme must tell the personal representatives the tax-free amount within three months of the final payment; the representatives' own deadline for reporting an excess over the lump sum and death benefit allowance to HMRC is extended from 30 days to two months.
• Smaller estates. HMRC intends to amend the excepted estates regulations before 6 April 2027 so that an estate with pension property can still qualify as an excepted estate, avoiding a full IHT400 where no tax is due.
• Still to come. A third technical note in autumn 2026 on international cases, the interaction with income tax, intestacy, charities and trusts; an updated Clearance Checker and an online calculator to apportion the nil-rate band to the pension; and full guidance in spring 2027.

Timeline for the changes

• October 2024: Announced in the Autumn Budget
• October 2024 – January 2025: Technical consultation. The original proposal made pension scheme administrators liable for reporting and paying the tax
• 21 July 2025: Government confirms the liability sits with personal representatives instead, and that death in service benefits are out of scope
• 11 May 2026: HMRC publishes its first technical note on the legislation in Finance Act 2026 (updated 29 May 2026)
• 15 July 2026: Information-sharing regulations laid (SI 2026/818)
• 27 August 2026: Technical note 2 — the deadlines, notice templates and identity evidence described above
• Autumn 2026: Technical note 3 expected
• Before 6 April 2027: Excepted estates regulations amended so estates with pension property can still qualify
• Spring 2027: Full HMRC guidance and tools
• 6 April 2027: Changes take effect for deaths on or after this date

If your loved one died before April 2027, the current rules still apply — pension funds are outside the estate for IHT purposes.

What to do now if your loved one has a pension

Whether you are dealing with an estate now or planning for the future, the practical steps are:

1. Check what pension or pensions your loved one held — personal pensions, SIPPs, and any workplace schemes
2. Contact each pension provider to notify them of the death (even before April 2027, this is an important step for estate administration)
3. Ask the pension provider what their process is for the death benefits — and, after April 2027, how they will handle the IHT withholding process
4. Check whether the benefits pass to a surviving spouse or civil partner, or to charity, in which case they are exempt from inheritance tax

For further context on pensions after death, see our guide on claiming private and workplace pensions and our guide on pension death benefits and nomination forms. Pensions are just one of the assets you need to track after a death.

Frequently asked questions

Will my mum's or dad's pension be taxed if they died before April 2027?

No. The change applies to deaths on or after 6 April 2027. For a death before that date, unused pension funds and death benefits generally stay outside the estate for inheritance tax, as they always have.

Who pays the inheritance tax on a pension from April 2027?

The personal representatives report it and are liable to pay it, not the pension scheme. Once a beneficiary is entitled to the money they become jointly liable with the personal representatives for the tax on it. The tax can be paid straight from the pension to HMRC using a payment notice.

Is a pension left to a husband, wife or civil partner taxed?

No. The spouse and civil partner exemption still applies, as does the charity exemption, so a pension passing to a surviving spouse or civil partner, or to charity, is not taxed.

Are death in service benefits affected?

No. Death in service benefits from a registered pension scheme are excluded from the change, as are dependants' scheme pensions from a defined benefit or collective money purchase arrangement.

Can the scheme hold back an inherited pension?

Only if the personal representatives serve a withholding notice. The scheme then holds back up to 50% of each beneficiary's benefits for up to 15 months after the end of the month of death. Without a notice, the scheme pays out as normal.

Will I pay income tax as well as inheritance tax?

If the person was 75 or over when they died, death benefits are taxable as your income. If they were under 75, they are usually tax-free within the allowance. Where inheritance tax is paid on the benefits, the part matching the tax paid does not count as your taxable income.