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Farra is a death administration assistant for UK families. Get step-by-step guidance for registering a death, applying for probate, notifying banks, and managing bereavement admin. From essential documents to practical checklists, Farra simplifies estate paperwork and funeral-related tasks so you can focus on what matters.
From 6 April 2027, unused pensions included in estates for IHT—one of biggest IHT changes in decades. Currently tax-free; from 2027 subject to 40% IHT. Double taxation: 40% IHT on value, then income tax (up to 45%) on withdrawals. Affects ~10,500 estates annually. Death in service and spousal transfers exempt. Deaths before April 2027 use current favourable rules.
This change was announced in the October 2024 Budget and is confirmed to take effect from 6 April 2027. The government estimates it will affect approximately 10,500 estates annually that would not otherwise have paid inheritance tax.
Under current rules (applying to deaths before April 2027), most pension funds can be passed on without inheritance tax:
Most workplace pensions and personal pensions (SIPPs, stakeholder pensions) are "defined contribution" - you build up a pot of money that can be passed to beneficiaries.
Pension death benefits are typically paid at the discretion of the pension scheme trustees. Because the deceased doesn't have a legal right to direct where the money goes (even though their wishes are usually followed), the funds aren't considered part of their estate.
The government announced in the October 2024 Budget that unused pension funds and death benefits will be brought into the scope of inheritance tax from 6 April 2027.
The government argues that pensions should be used for their intended purpose - funding retirement - rather than as a tax-efficient way to transfer wealth, as explained in Which?'s pension inheritance guide. They estimate the change will raise approximately £1.46 billion per year by 2029/30.
One of the most controversial aspects of this change is the potential for "double taxation" on inherited pensions.
If the deceased died aged 75 or over:
Inherited pension: £100,000
The government consulted on this issue and acknowledges the concern. There may be provisions to mitigate double taxation, but details have not been confirmed. We'll update this guide when further guidance is published.
If the deceased died before age 75, beneficiaries currently receive pension funds free of income tax. It's not yet confirmed whether this will continue under the new rules (with IHT applying instead) or whether both taxes could apply in some circumstances.
Many people have been advised to leave their pension untouched and live off other savings, using the pension as a tax-efficient way to pass wealth to the next generation. This strategy will be significantly less effective from April 2027.
The change particularly affects those with substantial defined contribution pensions - often people who benefited from final salary scheme transfers or who maximised pension contributions for decades.
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For estates that are currently just under the nil-rate band, adding pension wealth could tip them over the threshold and trigger an IHT liability.
If your loved one died before 6 April 2027:
For deaths occurring on or after 6 April 2027:
The deceased may have pensions from multiple sources:
Tip: Use the Pension Tracing Service to find lost pensions.
You'll need to notify each provider and request:
From April 2027:
Executors must include pension values on inheritance tax returns. HMRC will issue updated guidance on form completion before April 2027.
These work differently from defined contribution pensions. Typically, they pay:
Contact the scheme administrator for specific details.
If someone dies while still employed and a member of their employer's pension scheme, death in service benefits remain exempt from inheritance tax. This typically includes:
If the deceased was already taking income from their pension (in "drawdown"), the remaining fund will be subject to the new IHT rules from April 2027.
| Date | What Happens |
|---|---|
| October 2024 | Change announced in Autumn Budget |
| 2026-2026 | HMRC publishes detailed guidance; pension providers prepare systems |
| 6 April 2027 | New rules come into force - pensions included in estates for IHT |
| Deaths before 6 April 2027 | Current (favourable) rules apply |
| Deaths from 6 April 2027 | New rules apply - pensions subject to IHT |
This change represents a fundamental shift in how pensions are treated for inheritance tax. Bereaved families dealing with estates from April 2027 onwards should ensure they understand the new rules and seek professional advice where pension wealth is significant.
1 in 3 probate applications are sent back. IHT errors are the most common reason.
Answer 5 questions in under 2 minutes. We'll calculate your inheritance tax position — nil-rate band, RNRB, spouse exemption, any gifts — and tell you which forms to file.
Where they normally lived, even if they died somewhere else.
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