Are pensions subject to inheritance tax from 2027?

Yes. Under the Finance Act 2026, for deaths on or after 6 April 2027 most unused pension funds and pension death benefits are counted as part of the estate for inheritance tax, and can be taxed at 40% above the tax-free allowances. Pensions passing to a spouse or civil partner or to charity remain exempt, and death-in-service benefits are excluded.

When do the pension inheritance tax changes start?

They apply to deaths on or after 6 April 2027. The change is confirmed law, legislated in the Finance Act 2026, which received Royal Assent on 18 March 2026.

How can life insurance help with the 2027 pension inheritance tax change?

A life insurance policy written in trust pays out to your family directly, outside your estate, so it is not taxed itself. That tax-free lump sum can be used to pay an inheritance tax bill without the family having to sell the home or other assets in a hurry.

Inheritance tax

What the April 2027 pension change means for your family

Guide · Updated September 2026

There's a big change to inheritance tax coming, and it could affect a lot more families than people realise. From 6 April 2027, most unused pension savings will start to count as part of your estate when you die. Here's what that means in plain English, and why it makes life insurance worth a fresh look.

What's actually changing

Until now, money left in most pension pots has usually sat outside your estate, which meant it could be passed on without an inheritance tax bill. From April 2027 that changes: unused pension funds and most pension death benefits will be counted alongside the rest of your estate for inheritance tax purposes.

Inheritance tax is charged at 40% on anything above your tax-free allowance. The standard allowance (the "nil-rate band") is £325,000, with a further residence nil-rate band of up to £175,000 if you leave your main home to your children or grandchildren. Both are frozen until April 2031, so as pensions and house values are counted in, more estates are pulled over the line.

Is this definitely happening? The current status

Yes. This is confirmed law, not a proposal. The change was legislated in the Finance Act 2026, which received Royal Assent on 18 March 2026, and it applies to deaths on or after 6 April 2027. Some key details from the official guidance:

What's included: most unused pension funds and pension death benefits become part of the estate for inheritance tax.
What's excluded: pensions passing to a spouse or civil partner stay exempt, as do those left to charity, and death-in-service benefits paid from a registered pension scheme are kept outside the charge.
Who deals with it: from April 2027 the estate's personal representatives, not the pension scheme, are responsible for reporting and paying any inheritance tax due on the pension.

Sources: HMRC's technical note on inheritance tax on pensions and the GOV.UK policy paper (2026).

The government expects around 10,500 extra estates a year to face an inheritance tax bill because of this change, families who would not have paid before.

Who is most likely to feel it

The people most affected tend to be those whose wealth is tied up in things that are hard to sell quickly, especially a family home, plus a pension they never fully spent. When the pension is added to the value of the house, an estate that used to sit under the threshold can suddenly go over it.

A worked example

Take Raymond, a divorced father of two who dies in 2028 leaving a £400,000 home and a £250,000 unused pension pot, with everything going to his children. Because he is not married, he has only his own allowances: the £325,000 nil-rate band plus up to £175,000 residence allowance (as he leaves his home to his children), so £500,000 tax-free in total.

Before the change: only the £400,000 home counts. That is under his £500,000 of allowances, so there is likely no inheritance tax to pay.
From April 2027: the £250,000 pension is added too, making an estate of £650,000. The £150,000 above his allowances is now taxed at 40%, a bill of around £60,000 that his children must find, potentially before they can access the money.

A life insurance policy written in trust could provide a tax-free lump sum to meet that £60,000, so the family isn't forced into a quick sale. This is a simplified illustration; your own allowances and figures will differ, and transferable allowances from a late spouse can change the picture, which is exactly why it is worth checking your own position.

Where life insurance comes in

Here's the useful part. If your family faces an inheritance tax bill, they normally have to find the cash to pay it, sometimes before they can even access the rest of the estate. That can mean selling the family home in a hurry.

A life insurance policy that is written in trust pays out to your loved ones directly, outside your estate, so it isn't taxed itself. That money can then be used to cover the inheritance tax bill, without anyone being forced into a quick sale.

What you can do now

You don't need to panic, but it's worth understanding roughly what your estate is worth once your home and pension are counted together. If it's near or over the threshold, that's a good prompt to speak to an independent financial adviser about whether life cover held in trust could help. Our simple guide to writing a policy in trust explains how that works, and is life insurance taxable in the UK? covers the wider tax picture.

Information only. This is general information, not financial, tax or legal advice, and not a personal recommendation. Tax rules depend on your circumstances and can change. Please speak to a qualified, FCA-regulated adviser or a solicitor before acting.