Pensions come into the inheritance tax net from April 2027

What is actually changing?

Today most unspent pension funds are not counted as part of the estate for inheritance tax. For deaths on or after 6 April 2027 they are. This is settled law rather than a proposal: it was legislated in the Finance Act 2026, which received Royal Assent on 18 March 2026.

Nothing about the property itself changes. What changes is the total the property sits inside. HMRC estimates that of roughly 213,000 estates a year holding inheritable pension wealth, about 10,500 will owe inheritance tax that would not have owed any before, and about 38,500 will owe more than they would have. The average bill rises by around £34,000 where pension assets are brought in.

Which pensions are actually caught?

Not all of them, and the exceptions matter more than the rule for most families.

Anything passing to a surviving spouse or civil partner remains exempt, as it does for the rest of the estate. That is the most common case of all, and it is the reason a great many estates will see no change whatsoever.

Death in service lump sums are excluded entirely. If an employer’s scheme pays a multiple of salary on death, that payment is outside this change. So are dependant’s scheme pensions from a defined benefit or collective money purchase arrangement. Gifts to registered charities keep their existing exemption too.

What is caught is the unused pot: money purchase savings that were never drawn as income, passing to someone other than a spouse or civil partner.

Who has to pay it, and out of what?

Personal representatives report and pay the inheritance tax on the pension. That was not a foregone conclusion, since the consultation floated putting the duty on scheme administrators instead, and it is the detail most commentary got wrong at the time.

The important part for an executor is that the pension can pay its own tax. Personal representatives can direct the scheme to hold back up to half of the taxable death benefits, for up to 15 months from the date of death, and pay the inheritance tax due on them straight to HMRC before the balance is released to the beneficiaries.

That mechanism exists precisely because of the sequencing problem. Where inheritance tax is due it generally has to be reported, and usually paid, before the grant of probate is issued, and the grant is what gives an executor the authority to sell. Without the withholding route an executor could face a bill they had no legal power to fund. With it, the asset that created the liability can settle it.

So does the house have to be sold?

Usually not, and it is worth being blunt about that because the arithmetic looks alarming before you see the mechanism.

Where the extra tax is attributable to the pension, the pension can fund it. A property sale becomes the question only where the estate’s liability outruns what can be withheld, or where the beneficiaries would rather keep the pension intact and settle the bill another way. Those are real situations, and they are the ones worth planning for early rather than discovering under time pressure.

The inheritance tax calculator sets out the thresholds as they currently stand, including the residence nil-rate band and the taper that applies to larger estates.

What should you do now?

Nothing urgent, and nothing irreversible. If you are administering an estate now, the current position applies and the change does not reach you.

If you are looking ahead to an estate that will be administered after April 2027, the useful step is knowing the numbers: what the property is realistically worth, what the unspent pension holds, and who it is going to. Those three facts decide whether any of this applies at all.

We are not tax advisers and this is not tax advice. Where an estate is anywhere near the threshold, that is a conversation for a solicitor or an accountant, and we will say so rather than guess.