Pensions and Inheritance Tax from 6 April 2027
For deaths on or after 6 April 2027, most pensions not yet used count towards the estate for Inheritance Tax. Until then they sit outside it. This page works out the Inheritance Tax on an estate for a death today and for one on or after that date, side by side, with the same sums as the estate page in Oxygene Finance.
Your figures
It opens on an example: a married couple with a £550,000 home left to their children, £400,000 of other savings and investments, and £350,000 in pensions. Change any of them. Your figures stay in this browser. The sums run on this page; nothing you type is sent to us or kept.
On these figures
On these figures there is no Inheritance Tax on the first death, when everything is left to the other. There is no Inheritance Tax for a second death today. For one on or after 6 April 2027 it is £120,000: £120,000 more, once £350,000 of pension counts towards the estate.
| A death today | A death on or after 6 April 2027 | |
|---|---|---|
| Pensions counted | £0 | £350,000 |
| The estate | £950,000 | £1,300,000 |
| Nil-rate band | £650,000 | £650,000 |
| Residence nil-rate band | £350,000 | £350,000 |
| Above the bands | £0 | £300,000 |
| Inheritance Tax on the first death, everything left to the other | £0 | £0 |
| Inheritance Tax on the second death | £0 | £120,000 |
Difference for a death on or after 6 April 2027: £120,000
Above £2,000,000 the residence nil-rate band is reduced by £1 for every £2. With the pension counted, the estate is £1,300,000, so £0 of the band is lost. For a death today it is not reduced.
The residence nil-rate band is no more than the home left to direct descendants: £550,000 here.
Where someone dies before 75, whoever inherits the pension usually pays no Income Tax on what they take out of it. A lump sum over the allowance for tax-free death benefits, or a payment made more than two years after the scheme is told of the death, is taxed as their income.
The pension rule is law: Finance Act 2026, sections 66 to 71, which received Royal Assent on 18 March 2026. It applies to deaths on or after 6 April 2027. Parliament could still change it before then, and HMRC is still publishing guidance on how the tax is reported and paid. Sources: the Act, HMRC’s technical note.
On today’s values and 2026/27 bands, which are fixed until 5 April 2031.
Figures follow the law as it stands. Announced and draft changes are not included.
How it is worked out
- The estate is the home, less any mortgage, and everything else, less debts. For a death on or after 6 April 2027, the pensions not yet used are added to it.
- The nil-rate band is £325,000. The residence nil-rate band adds up to £175,000 when the home is left to direct descendants, and no more than the home is worth. Above £2,000,000 it is reduced by £1 for every £2, measured on the whole estate, pensions included once they count. What is left above the bands is taxed at 40%.
- For a married couple or civil partners, everything left to the other on the first death is exempt, pensions included, so the first death has no Inheritance Tax. The unused bands of the first to die pass to the survivor, so the second death has both: £650,000, and up to £350,000 with the home.
- Lump sums paid because someone died while still in the job (death in service), and a dependant’s pension from a defined benefit scheme, stay outside the estate after 6 April 2027 as well as before.
- Age changes no Inheritance Tax. It changes only the Income Tax on what is taken out of an inherited pension.
What it leaves out
- Gifts made in the seven years before death.
- Business and agricultural property relief, legacies to charity and the 36% rate, funeral costs and other reliefs.
- A first death where not everything went to the other, or where that estate was over £2,000,000: less of the bands then passes on.
- Unmarried partners, who have no spouse exemption and pass on no unused band. For one of them, choose No and enter that person’s own estate.
- Who pays: the executors report the pension and pay the tax on it, and can ask the scheme to pay it from the pension.
- It is an estimate on today’s values, not a valuation for probate.
More on the assumptions behind the app’s own projection: how the retirement figures are worked out.
Questions
Which pensions count towards the estate from 6 April 2027?
Most unused pension funds and lump sums paid on death, whether or not the scheme decides who receives them. Not counted: lump sums paid because someone died while still in the job (death in service), a dependant’s pension from a defined benefit or collective money purchase scheme, and lump sums paid to a charity. A defined benefit pension paid as an income stops, or carries on as a dependant’s pension, so it is not counted either.
Source: GOV.UK
Is a pension left to a husband, wife or civil partner taxed?
No. Pensions left to a spouse or civil partner, or to a charity, are exempt, as other assets are, after 6 April 2027 as before. Unmarried partners do not have this exemption.
Source: GOV.UK
What is the residence nil-rate band?
A further band of up to £175,000 when a home, or a share of one, is left to direct descendants: children, stepchildren, adopted and foster children, grandchildren and their husbands, wives or civil partners. It is reduced by £1 for every £2 the estate is over £2,000,000, and any of it unused on a first death passes to a surviving spouse or civil partner.
Source: GOV.UK
Is Income Tax paid on an inherited pension?
It depends on the age at death. Before 75, most payments to whoever inherits are free of Income Tax. At 75 or over, what they take out is taxed as their own income, at their own rate, on the amount left after Inheritance Tax.
Source: GOV.UK
Are the bands going up?
No. The nil-rate band, the residence nil-rate band and the £2,000,000 taper threshold are fixed at their current levels until 5 April 2031.
Source: GOV.UK
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Keeping the figures
This page forgets your figures when you leave it. Inside the app, the free estate page works this out on the household’s own figures, with its gifts and its plan beside it. Oxygene Finance runs the same sums on your own pensions, ISAs, savings and property, for one or two people, and keeps them up to date as your figures change. Features and plans shows what is free and what is Premium.
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Oxygene Finance provides information, not financial advice. Figures are estimates based on what you enter and on assumptions you can change. For decisions that matter, a regulated financial adviser or an accountant can look at your whole situation.