The Finance Act 2026 received Royal Assent on 18 March 2026 and brings most unused pension funds and pension death benefits into the deceased's estate for inheritance tax from 6 April 2027. For many families, it is the most significant change to pension tax treatment since 2015.
Here is what is actually changing, in language without the jargon.
The headline
From 6 April 2027, most unused pensions and pension death benefits will sit inside the deceased's estate for inheritance tax. If the total estate is above the inheritance tax thresholds, that pension wealth will be taxed at 40 per cent, in the same way as other estate assets.
This applies regardless of the age the pension holder dies at. The existing age-75 rule continues to affect how beneficiaries are taxed on the income they take from an inherited pension, but it does not change whether inheritance tax applies. The new rules apply at any age.
What stays the same
Several important exemptions continue to apply after April 2027.
- Transfers to a surviving spouse or civil partner remain exempt from inheritance tax, where they are long-term UK residents
- Charity gifts remain exempt
- Death-in-service benefits paid from a registered pension scheme remain outside the new rules
- Ongoing dependants' scheme pensions remain outside the new rules
- Joint life annuities purchased alongside the member's lifetime annuity remain outside the new rules
What it means for most people
For families whose entire estate, including pension, is below the available inheritance tax thresholds (the standard £325,000 nil-rate band, plus up to £175,000 residence nil-rate band where applicable), nothing changes. There is no inheritance tax to pay, either before or after April 2027.
For estates above those thresholds, the new rules can materially change the inheritance tax position. The size of the impact depends on the size of the pension, the size of the wider estate, the family structure, and the use of available exemptions.
HMRC's own analysis estimates that around 10,500 estates a year will face an inheritance tax liability from 2027 to 2028 that would not previously have done, and a further 38,500 estates will pay more than they would have done. The average increase in liability is around £34,000.
Why the timing matters
If your pension is a meaningful part of your overall wealth, the 2027 changes are a reason to revisit your planning. Most strategies to mitigate inheritance tax, including gifting, trust planning, business relief and the order in which different assets are drawn, take years rather than months to implement well.
Lifetime gifting in particular needs time. Gifts made more than seven years before death usually fall fully outside the estate. The shorter the window between now and any eventual death, the less time large gifts have to qualify.
The next few years matter. Behavioural change at this kind of scale is hard to do in a hurry.
Sources: HMRC technical note on inheritance tax on pensions; Finance Act 2026 (Royal Assent 18 March 2026); HMRC estimates of estate impact 2027-28.