Are pensions subject to inheritance tax?

Short answer

Currently, most pension funds sit outside your estate for inheritance tax, because they are held under discretionary trust by the provider. But the government has announced that from April 2027 most unused pension funds will be brought into the IHT calculation — so take updated advice as the change approaches.

For now, pensions are one of the most inheritance-tax-efficient assets you can leave. Most pension funds are held under a discretionary trust by the pension provider, so the fund does not legally belong to you — and it therefore falls outside your estate when IHT is calculated. Death benefits are directed by your nomination (expression of wishes) form with the provider, not by your will.

The April 2027 change

This favourable treatment is ending. The government has announced reforms that will bring most unused pension funds into the IHT calculation from April 2027. Anyone whose estate planning leans heavily on leaving pension wealth untouched should revisit that strategy with a specialist adviser before the rules change — what is efficient today may not be in two years' time.

How the rest of the IHT picture fits together

IHT is charged at 40% on the taxable estate above your available allowances:

The nil-rate band of £325,000, frozen until at least 2030, transferable to a surviving spouse or civil partner for a combined £650,000.
The residence nil-rate band of up to £175,000 where a home passes to direct descendants — potentially £500,000 per person or £1 million for a couple, though it tapers away for estates over £2 million.
Gifts between spouses and civil partners are wholly exempt, and lifetime gifts made more than 7 years before death fall out of the estate entirely, with taper relief on the tax for gifts made 3–7 years before death.

To see how your own numbers stack up, try our inheritance tax calculator, and use the seven-year gift taper calculator for lifetime gifts. One warning shared by pensions and property alike: schemes that let you keep enjoying an asset you have "given away" rarely work — giving your house to your children while still living in it is a gift with reservation of benefit and stays in your estate. Specialist advice before acting is always cheaper than unwinding a mistake.

Read the full guide: Inheritance Tax BasicsCovers eligibility, the process, deadlines, and next steps in depth.

Related guides

Making a Will

A will is the only way to ensure your assets go to the people you choose after your death. Without a valid will, the intestacy rules determine who inherits — and these may produce very different results from your wishes, particularly if you are unmarried, have stepchildren, or have a complex family situation. Making a will is one of the most important legal steps you can take.

11 min

Deed of Variation: Changing a Will After Death

A deed of variation allows beneficiaries of an estate to redirect their inheritance — to other family members, to charity, or to skip a generation — within two years of the deceased's death. When made correctly, the variation is treated as if the deceased had made it themselves for inheritance tax and capital gains tax purposes.

8 min

Grant of Probate: The Probate Process Explained

A Grant of Probate is the legal document issued by the Probate Registry that confirms the executor's authority to deal with the deceased person's estate. Most financial institutions and land registries require a Grant of Probate before releasing assets. This guide explains when you need probate, how to apply, what it costs, and what happens during estate administration.

10 min