Pension Inheritance Tax (2027) Estimator

What changes on 6 April 2027

For deaths on or after 6 April 2027, most unused pension pots and pension death benefits will be counted as part of your estate for Inheritance Tax. This was announced at the Autumn Budget 2024 and has since been legislated in the Finance Act 2026. It is one of the biggest changes to estate planning in a generation.

Until now, a defined-contribution pension you had not fully spent has generally passed to your beneficiaries outside your estate — free of Inheritance Tax. That made pensions an unusually efficient way to pass on wealth: many people deliberately spent other savings first and left the pension untouched. From April 2027 that advantage largely disappears, and the pot is treated like any other asset above your tax-free bands, taxed at 40%.

How the estimate works

The calculator runs your estate twice and shows the difference:

• Before April 2027: your estate is everything except the pension. Inheritance Tax is 40% of whatever sits above your available nil-rate bands.
• From April 2027: the unused pension is added to the estate. The larger total can push you over the £2 million taper threshold and start eroding your residence band as well.

The headline figure is the extra Inheritance Tax the pension now attracts — the difference between the two. Everyone has a £325,000 nil-rate band, plus a further £175,000 residence nil-rate band where the main home passes to direct descendants. A married couple or civil partners can pass unused bands to the survivor, giving up to £1 million tax-free between them.

The £2 million taper — the double whammy

The residence nil-rate band is withdrawn for larger estates: for every £2 of estate above £2 million, you lose £1 of the £175,000 residence band. Because the pension now counts towards that £2 million test, a pot that tips you over the line does double damage — it is taxed at 40% itself, and it strips away residence-band relief that is then also taxed at 40%. That is why the calculator can show an effective rate on the pension of well over 40%. It flags the portion of your bill caused by this erosion separately.

A worked example

Take a single person with a £1.9 million estate (including a £500,000 home left to their children) and a £300,000 unused pension:

• Now: estate £1.9m, under the £2m threshold. Full £325,000 + £175,000 bands apply, so £1.4m is taxable — IHT of £560,000.
• From April 2027: estate becomes £2.2m. The £200,000 over £2m tapers the residence band down to £75,000, so £1.8m is taxable — IHT of £720,000.
• Extra IHT on the £300,000 pension: £160,000 — an effective 53% on the pot, because £40,000 of it is the lost residence band.

What is exempt — and who pays

The spouse and civil-partner exemption survives: leaving the pension to a spouse means no tax on the first death, but the charge is deferred to the second death, not cancelled. Gifts to registered charities are exempt, and death-in-service benefits from a registered scheme stay outside the estate — do not include those in the figure you enter.

Crucially, after the government's consultation the duty to report and pay the tax falls on your Personal Representatives (your executors), not the pension provider. They can ask a scheme to withhold up to 50% of a benefit for up to 15 months while the Inheritance Tax is settled. This is an administrative burden families should be ready for.

Sources: HMRC — Inheritance Tax on unused pension funds and death benefits (deaths on or after 6 April 2027; Personal Representatives liable; spouse, charity and death-in-service exemptions), and the Finance Act 2026. Nil-rate band £325,000, residence nil-rate band £175,000, £2m taper and 40% rate per gov.uk. Figures verified 12 July 2026.