Pension Inheritance Tax Calculator (April 2027 Reform): Estate IHT Impact
Estimate the extra Inheritance Tax when unused pension funds join the estate for deaths from 6 April 2027, with the nil-rate band, RNRB and spouse exemption.
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April 2027 pension IHT reform - the rules
- For deaths on or after 6 April 2027, a member of a registered pension scheme is treated as entitled, immediately before death, to "notional pension property": broadly, unused defined-contribution funds and lump sum death benefits from defined benefit arrangements (IHTA 1984 s.150A, inserted by Finance Act 2026 s.66; commencement in s.71).
- This applies whether or not the scheme administrator or trustees have discretion over who receives the death benefits (HMRC policy paper, 21 July 2025).
- Excluded: dependants' scheme pensions, dependants' or nominees' annuities bought together with the member's lifetime annuity, and benefits payable only because the member died in service (s.150A(6)).
- Who pays: the personal representatives are liable, and so are the people who receive the pension benefits. The scheme administrator becomes liable only if it pays benefits in breach of a withholding notice or fails to pay tax it has been told to pay. A beneficiary or the personal representatives can require the scheme to pay the tax direct, within 35 days of the notice (IHTA 1984 ss.210, 226A and 226B, inserted by Finance Act 2026 ss.67 and 68).
- HMRC estimates that, of around 213,000 estates with inheritable pension wealth in 2027 to 2028, 10,500 will have an Inheritance Tax liability where previously they would not, and about 38,500 will pay more. The average liability is expected to rise by around £34,000. HMRC describes these as static estimates that should be viewed as a maximum (same policy paper).
- Pension benefits paid to a surviving spouse or civil partner, or to charity, stay exempt (IHTA 1984 ss.18 and 23, applied by the new s.210(7)-(8)).
Planning implications
- Drawing the pension does not by itself remove it from the estate. Money drawn and kept in a bank account or ISA is still in your estate, and drawdown is taxed as income when you take it. Only what you spend or give away leaves the estate.
- Lifetime gifts. A gift to a person is a potentially exempt transfer (IHTA 1984 s.3A): it falls out of the estate if you survive 7 years. Regular gifts from surplus income can be exempt straight away under the normal expenditure out of income exemption (s.21), and £3,000 a year is exempt under the annual exemption (s.19).
- Defined benefit schemes. A dependants' scheme pension is excluded, but lump sum death benefits from a defined benefit arrangement count.
- Married couples. Leaving the pension to a surviving spouse or civil partner is exempt on the first death; what is left in the survivor's estate at the second death may be taxed then.
- Income Tax as well. If the member dies aged 75 or over, beneficiaries also pay Income Tax on what they draw. This calculator shows Inheritance Tax only.
Sources
- HMRC - Inheritance Tax on pensions technical note
- HMRC - Reforming Inheritance Tax: unused pension funds and death benefits
- Figures used: nil-rate band £325,000; residence nil-rate band £175,000, tapered by £1 for every £2 of estate above £2,000,000 and limited to the value of the home left to direct descendants; with a late spouse's unused bands transferred, up to £1,000,000. Tax at 40% on the excess, or 36% where 10% or more of the estate is left to charity (IHTA 1984 Sch 1A); the charity rate is not modelled here.
- Finance Act 2026 ss.66-71 - the enacted rules.
- Estimate only. Not tax advice. For complex estates take advice from a solicitor or accountant.