UK puts pensions into inheritance tax

HM Revenue & Customs has confirmed that most unused pension funds and pension death benefits will be brought into the value of a deceased person’s estate for inheritance tax from April 6, 2027. The change was first announced at the UK’s Autumn Budget in October 2024 and has since been set out in consultation papers, draft legislation and a technical note published on May 11, 2026. That means a UK pension pot that has often sat outside the inheritance tax net for estate-planning purposes may now be counted when HMRC assesses the estate on death. HMRC said the measure will apply to “most unused pension funds and pension death benefits,” while excluding death-in-service benefits paid from a registered pension scheme and some narrow categories such as exempt benefits, funds under £1,000 and continuing annuities. (assets.publishing.service.gov.uk) ### Which pensions are being pulled into inheritance tax? HMRC’s May 2026 technical note says the reform will bring “most unused pension funds and pension death benefits” within the value of a deceased person’s estate for inheritance tax purposes from April 6, 2027. Draft legislation published by the government covers registered pension schemes, qualifying non-UK pension schemes and certain section 615(3) schemes. (gov.uk) The government said the change removes what it described as a distortion in the tax system and aligns the inheritance tax treatment of pensions more closely with other assets. The Autumn Budget 2024 document said the government was making the inheritance tax system “fairer” by applying inheritance tax to unspent pension pots. (gov.uk) ### Does this mean beneficiaries will always pay more tax? Inheritance tax is separate from any income tax that can arise when beneficiaries draw pension benefits, and HMRC’s papers focus on the inheritance-tax side of the change rather than abolishing the existing income-tax rules. The practical effect will depend on the size of the estate, the available nil-rate bands and who inherits. (assets.publishing.service.gov.uk) HMRC has not said every pension death benefit will face a new tax bill. It has said the value of most unused pension funds and death benefits will be included in the estate for inheritance-tax purposes, which means exposure depends on the wider estate calculation. (gov.uk) ### Who will deal with HMRC after someone dies? HMRC said in July 2025 that personal representatives, not pension scheme administrators, will be liable for reporting and paying inheritance tax on unused pension funds and death benefits from April 6, 2027. That reversed an earlier consultation proposal that would have put the reporting and payment duty on pension scheme administrators. (gov.uk) The government said respondents raised concerns about making pension scheme administrators responsible for the tax process. HMRC’s summary of responses said personal representatives are already responsible for administering the rest of the estate and would remain liable for the pension element as well. (gov.uk) ### Why are advisers flagging this for people moving abroad? Sam Harley, a UK financial planner, said in an X post that the reform “rewrites the entire estate planning conversation” for people with large UK pension pots who plan to move to Spain. His warning reflects the fact that the UK change is tied to the deceased’s pension assets entering the inheritance-tax estate, not to where the retiree plans to live. (gov.uk) For expatriates with UK pensions, the immediate documents in play are likely to be beneficiary nominations, wills and wider estate paperwork, because HMRC’s framework now points to the estate administration process after death. That is an inference from the government’s reporting-and-payment design, which places responsibility on personal representatives from April 2027. (gov.uk) ### What happens next before the rule starts? April 6, 2027 is the implementation date across HMRC’s policy papers, technical note and consultation outcome. The government has already published draft legislation and said the measure will be legislated through Finance Bill 2025-26. (gov.uk) HMRC’s published guidance, consultation outcome and technical note are the main official sources setting out how the new inheritance-tax treatment is expected to work before the April 2027 start date. (gov.uk 1) (gov.uk 2)