For married couples and civil partners, the spousal exemption is one of the most important reliefs in the inheritance tax system. It continues to apply to pensions after the Finance Act 2026 changes. The point worth understanding is what it does, and what it does not.
What the spousal exemption does
Inheritance tax does not apply to assets passing to a surviving spouse or civil partner who is a long-term UK resident. From 6 April 2027, this exemption continues to apply to pensions in the same way it applies to other estate assets. A pension left to a surviving spouse on the first death passes without inheritance tax, exactly as it does today.
Why the position is different on the second death
Before April 2027, a pension passing on the second death would typically have passed outside the estate to children or other beneficiaries, and often free of inheritance tax. From April 2027, the same pension on the second death falls inside the estate. Inheritance tax at 40 per cent may apply on the portion of the combined estate above the available thresholds.
In other words, the spousal exemption defers the inheritance tax position until the second death, but does not remove it. For couples whose combined estate, including pension, exceeds the combined nil-rate bands, the inheritance tax bill on the second death is potentially significantly larger than it would have been before the rule change.
What couples can do now
Couples in this position have a wider planning surface than individuals.
- The use of the nil-rate band and residence nil-rate band on the first death rather than carrying them forward
- Whether the surviving spouse should be the beneficiary of the pension, or whether other family members should receive part of it
- The role of lifetime gifts, and whether to start sooner rather than later
- The role of life assurance written in trust to fund any eventual inheritance tax liability
- How the combined retirement income strategy interacts with the IHT position over both lifetimes
None of these has a single right answer. The right approach depends on age, health, family structure, business interests and personal preferences. The point of the planning conversation is to map out the options together and pick a coordinated approach, rather than treating each decision in isolation.
What it changes about timing
Many couples have always assumed that any meaningful estate planning could wait until later in life. The 2027 changes shift that. Where pension wealth is significant and the second death could fall after April 2027, the planning surface widens now, not later. Lifetime gifting and trust structures take years to settle into the most efficient position. Earlier conversations matter.
Sources: GOV.UK policy paper on inheritance tax on unused pension funds; Finance Act 2026.