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Pensions and inheritance tax from April 2027
From 6 April 2027, most unused pension pots count towards your estate. Put in what you own and see the inheritance tax due now and after the change, with the allowances worked out for you.
- Today
- From 2027
- Estate
- Nil-rate band
- Residence nil-rate band
- Taxed at 40%
The residence nil-rate band falls by £1 for every £2 an estate is over £2 million. From April 2027 pensions count towards that £2 million too.
See it at every age, and what would bring it down
Isaac’s inheritance tax planning models your estate year by year, as your pensions are drawn and your home rises in value.
- Your estate and the tax at any age, from April 2027 rules
- Gifts and the seven-year clock, with taper relief
- Drawing pensions first compared with leaving them
- Free to start. No card. iPhone, Android and web
What changes in April 2027
Since 2015, an unused defined contribution pension has usually been outside your estate. From 6 April 2027, for deaths on or after that date, most unused pension funds and death benefits are added to the estate when inheritance tax is worked out. Death-in-service benefits, dependants’ scheme pensions and pensions left to charity stay outside. Anything left to a spouse or civil partner is still exempt, so for couples the change usually bites on the second death.
Income tax on inherited pensions carries on as now: if someone dies at 75 or over, their beneficiaries pay income tax on what they draw. So from 2027 a pension can face inheritance tax and then income tax on the same money. Your executors report pensions with the rest of the estate and pay any tax due.
How this calculator works
It adds up your estate, takes off the nil-rate band (£325,000 each) and, if your home goes to direct descendants, the residence nil-rate band (£175,000 each, no more than the home’s value, tapering above £2 million). For a couple, it assumes everything passes to the survivor first and both sets of allowances pass on in full, and works out the tax on the second death. What is left is taxed at 40%.
What it leaves out
- Gifts made in the last seven years, and taper relief on them.
- Trusts, Business Relief and Agricultural Relief, and the 36% rate when at least 10% goes to charity.
- Life cover not written in trust, which adds to the estate.
- Defined benefit pensions, which mostly stop or pass on as a dependant’s pension rather than a pot.
For the full background, read pensions and inheritance tax from April 2027 and our inheritance tax guide.