HMRC guidance on inheritance tax (IHT) on pensions from April 2027

The HMRC technical note (May 2026) sets out how IHT will apply to pensions from 6 April 2027, following legislation in the Finance Act 2026.

The core reform is that most unused pension funds and pension death benefits will be included within a deceased person’s estate for IHT purposes. Previously, many pensions sat outside the estate, making them a highly effective inheritance planning tool. The change aims to reduce this advantage and ensure more consistent tax treatment across asset types.

Pension assets brought into scope are termed “notional pension property”, which must be identified, valued, and reported as part of the estate. Responsibility for this lies primarily with personal representatives, who must gather information from pension scheme administrators, calculate the tax due, and ensure payment within standard IHT deadlines which are usually six months from the date of death.

The note also introduces new administrative mechanisms, including information‑sharing requirements, the ability to issue withholding notices (to retain funds to cover tax), and a direct payment system allowing pension schemes to pay IHT directly to HMRC.

Certain exemptions are retained: benefits paid to a spouse or civil partner, charities, and some specific pension income streams (e.g. dependants’ pensions) remain outside the scope of IHT.

Key implications

• Reduced tax efficiency of pensions for estate planning
  Pensions will no longer be a reliable way to pass wealth free of IHT, particularly for individuals intending to leave funds to children or non‑spouse beneficiaries.
• Greater importance of holistic estate planning
  Individuals may need to reconsider asset allocation, withdrawal strategies, and gifting during lifetime, as pensions and non‑pension assets will be taxed more consistently.
• Potential increase in IHT liabilities
  More estates will face IHT charges or higher bills where pension wealth is significant.
• Increased administrative complexity for estates
  Executors must locate all pension arrangements, obtain valuations, and coordinate with schemes which raises risks of delay, error, or penalties.
• Spousal exemption remains key
  Passing pension assets to a spouse or civil partner continues to defer IHT, reinforcing its importance in planning strategies.
• Need for updated advice before 2027
  Individuals should review pension nominations, estate plans, and drawdown strategies ahead of implementation in April 2027.

Overall, the reforms represent a fundamental shift in how pensions are taxed on death, moving them from a largely protected asset to a central component of the IHT regime. A link to the guidance is here: Technical note: Inheritance Tax on pensions - GOV.UK

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Andrew Whiting