Do I pay inheritance tax on my pension?

The short answer: it depends on when you die. Until 5 April 2027, most unused pensions pass to your loved ones free of inheritance tax. From 6 April 2027, that changes — your unused pension becomes part of your estate, and if your total estate is above the inheritance tax threshold, the excess is taxed at 40%.

For millions of people who treated their pension as a tax-free way to pass on wealth, this is one of the biggest changes to estate planning in a decade. This guide explains exactly when your pension is taxed, when it isn’t, and what determines which side of the line you fall on.

If you die before 6 April 2027
No inheritance tax

Your unused pension passes to your beneficiaries free of inheritance tax, outside your estate — regardless of size.

>
If you die on or after 6 April 2027
Potentially 40%

Your pension joins your estate. If the total exceeds your threshold, the excess — including the pension — is taxed at 40%.

The old rule – why pensions were free

Until 5 April 2027, unused defined contribution pension pots sit entirely outside your estate for inheritance tax purposes. When you die, the scheme trustees can pay your pot to whoever you’ve nominated — usually a spouse or your children — completely free of inheritance tax, regardless of how large it is.

This made pensions one of the most powerful estate-planning tools available. Many people were advised to spend other savings first and leave their pension untouched, precisely because it could be passed on tax-free. That advice was sound — under the old rules.

The new rule — what changes on 6 April 2027

From 6 April 2027, unused pension pots are brought within the scope of inheritance tax for the first time. Your pension will be added to the value of your property, savings, and other assets. If that combined total exceeds your inheritance tax threshold, 40% tax is due on everything above it — including the pension.

The change was announced in the October 2024 Autumn Budget and is expected to bring around 38,500 additional estates into inheritance tax each year.

40%
tax on estate value above your threshold
£325k
standard nil-rate band per person
38,500
estates newly affected each year
2027
the rules change on 6 April

So will YOUR pension be taxed? Three things decide it

Whether your pension actually gets taxed comes down to three factors:

  1. The type of pension you have. Only defined contribution (DC) pensions — SIPPs, personal pensions, and most modern workplace pensions — are affected. Defined benefit (final salary) pensions work differently and are largely unaffected, because they don’t leave a “pot” that passes to beneficiaries.
  2. The total value of your estate. Everyone has a tax-free threshold (the nil-rate band) of £325,000, with an extra £175,000 if you leave your home to direct descendants — and these double for married couples. If your entire estate, including your pension, stays below your threshold, no inheritance tax is due even after 2027.
  3. Your age when you die. This is the part most people don’t know. If you die after age 75, your beneficiaries pay income tax on pension withdrawals on top of any inheritance tax — a double hit that can take the effective rate to as much as 67%.
⚠️
The over-75 double tax trap If you die after age 75, your beneficiaries pay income tax on what they withdraw from your pension — on top of the 40% inheritance tax. For a higher-rate taxpayer inheriting your pot, the combined effective rate can reach 67%. This is the single most overlooked part of the 2027 change, and the most important for anyone over 75 or approaching it.

When your pension is NOT taxed

It’s just as important to know when you’re in the clear. Your pension generally won’t face inheritance tax if any of these apply:

Your entire estate, including the pension, falls below your nil-rate band threshold. You leave everything to a spouse or civil partner — transfers between spouses are exempt from inheritance tax regardless of size. You have a defined benefit pension that pays a dependant’s pension rather than a lump sum. Or you’ve already drawn down and spent most of your pension during your lifetime, so there’s little left in the pot.

How to find out where you stand

The only way to know your actual position is to add up your whole estate — pension, property, savings, ISAs, investments — and compare it to your threshold. Our free calculator does this in about two minutes, including the double-taxation effect for those over 75 and the common ISA misconception.

See your own number in two minutes

Our free calculator works out your estimated exposure from April 2027 – including the over-75 double-tax effect and the common ISA misconception.

Calculate my exposure

The 2027 change doesn’t affect everyone — but far more people than the government’s headline figures suggest will need to review their plans, even if they don’t ultimately owe more tax. Knowing your position now, while there’s still time to act, is the single most valuable thing you can do.

No. The state pension stops when you die and isn’t a pot that can be inherited, so it’s not affected. The change applies to private and workplace defined contribution pensions you haven’t fully drawn down.
Transfers between spouses and civil partners are exempt from inheritance tax, so leaving your pension to your spouse doesn’t trigger a bill on first death. But the position can change on the second death, when only one set of allowances applies — worth planning for.
It was announced in the October 2024 Budget and is proceeding through the legislative process. As with any tax change, details can be refined before it takes effect — we update our guidance whenever HMRC publishes new information.
Add up your property, savings, ISAs, investments and pension, then subtract any debts. Compare the total to your nil-rate band (£325,000, plus £175,000 if leaving your home to descendants — doubled for couples). Our calculator does this for you.

IMPORTANT DISCLAIMER: Nothing on this page constitutes financial advice. The options described are general information only. Your individual circumstances will determine which, if any, of these approaches are suitable for you. We strongly recommend speaking to a regulated independent financial adviser before making any changes to your pension or estate planning.