Published and sources checked · UK tax year 2026/27
What has changed, and when?
HMRC's technical note confirms that Finance Act 2026 received Royal Assent on 18 March 2026. The key date is the member's death: if it is before 6 April 2027, the earlier rules apply even when pension benefits are paid afterwards.
The reform brings most unused pension wealth into the Inheritance Tax calculation even where trustees have discretion over who receives it. Personal representatives will be responsible for reporting and paying the relevant tax, with additional liability rules for beneficiaries. Detailed administration is complex; follow HMRC's current implementation material when handling an estate.
Inclusion does not mean a flat tax on every pension
The standard Inheritance Tax threshold is £325,000. Other allowances and exemptions can change the calculation, including qualifying transfers between spouses or civil partners and the residence nil-rate band where its conditions are met. The standard 40% rate applies to the taxable amount after relevant allowances and exemptions, not automatically to every pound in every pension.
The government has excluded registered-scheme death-in-service benefits and certain dependants' scheme pensions from the reform. Ask the scheme to identify the benefit type; a pension balance, a survivor's pension and a death-in-service lump sum are different things.
Keep Income Tax and Inheritance Tax separate
Beneficiaries may also need to consider Income Tax on inherited pension payments. Existing Income Tax treatment depends on matters including the member's age at death, payment type and timing. The familiar age-75 distinction does not itself decide whether the new Inheritance Tax rules apply.
Do not add headline tax rates together or assume a universal combined rate. The order of calculations, available exemptions and treatment of the amount used to pay Inheritance Tax require the relevant HMRC rules. This overview does not calculate an estate's liability.
Useful preparation without rushing a withdrawal
Build a current list of pension providers, account references, approximate values and death-benefit terms. Check the people named in your expressions of wish and tell your intended executors where the records are kept. A nomination helps the scheme understand your wishes; it does not promise exemption from tax.
Review retirement spending and family needs alongside estate planning. Withdrawing a pension may create Income Tax and leave cash that is still part of an estate. Giving money away introduces separate gifting rules and reduces resources available for your own later life. A tax headline alone is not a reason to empty a pension.
For a real estate calculation, bring together pensions, property, other assets, debts, relevant gifts and beneficiary details. The interaction of those facts matters more than a single pension value.
Common questions
Is the April 2027 change still only a proposal?
No. The core reform was legislated in Finance Act 2026. HMRC is providing further material for implementation, and the change applies to deaths on or after 6 April 2027.
Will every pension be taxed at 40%?
No. Some benefits are excluded and allowances or exemptions may remove the liability. The calculation depends on the estate and beneficiaries, not just the pension balance.
Sources
Checked 7 October 2026. The linked sources are the authority for rules and eligibility.