From 6 April 2027, the SIPP inheritance tax 2027 rules will change how HMRC treats unused pension funds for inheritance tax (IHT) in the UK. For the first time, most untouched pension pots and death benefits will count as part of the deceased’s estate for IHT purposes. As a result, many families may face higher tax bills and will need to plan their estates more carefully.
The government introduced this change to prevent people from using pensions mainly to transfer wealth. They want pensions to fund retirement, not to reduce taxes.
In this article, we explain what’s changing, who it will affect, how to prepare, and why speaking to a professional advisor is more important than ever.
Currently, unused pension funds are often passed on tax-free, especially when the pension holder dies before age 75. But from 6 April 2027, this will no longer be the case.
Key changes include:
The changes are now legislated for in the Finance Act 2026, which received Royal Assent on 18 March 2026. They amend the Inheritance Tax Act 1984, including through new section 150A, and apply to deaths on or after 6 April 2027.
The new rules affect a wide group of people:
The current IHT rate is 40%, charged on the value of an estate that exceeds the nil-rate band of £325,000. This threshold is frozen until at least April 2030.
However, married couples and civil partners can pool their allowances and use the residence nil-rate band, potentially raising their total IHT-free threshold to around £1 million.
With inheritance tax on unused pension funds taking effect, more families may face unexpected IHT bills—especially those who assumed pensions were tax-free assets.
The Treasury states that the reform aligns pensions with other types of wealth. Ministers believe people increasingly use pension pots to pass on wealth instead of funding retirement. These pension IHT 2027 rules are intended to encourage people to use pensions for their original purpose: supporting them during retirement.
The government also estimates the change will raise £640 million in its first year (2028–29), growing to £1.34 billion annually, affecting around 40,000 estates with an average tax increase of £34,000.
While this reform is significant, some important exemptions remain:
If you have a Self-Invested Personal Pension (SIPP), the new rules will affect you in the same way as other unused pension funds. From 6 April 2027, the value of your SIPP immediately before death will generally be included in your estate for inheritance tax purposes.
This means that a SIPP can no longer be assumed to sit outside your IHT estate. If your SIPP takes the total value of your estate above your available nil-rate band, or any residence nil-rate band, your beneficiaries may face a 40% IHT charge on the excess.
Leaving your SIPP to a spouse or civil partner should generally remain exempt from IHT. However, this may simply defer the issue until the second death, when the combined estate could still exceed the available allowances.
Leaving a SIPP to children, grandchildren or other non-exempt beneficiaries is more likely to create an IHT liability after April 2027. It is therefore important to review your expression of wishes, keep your beneficiary details up to date, and consider how your SIPP fits alongside your other assets.
Withdrawing funds from your SIPP before death may reduce the value of your estate, but it can also create an immediate income tax charge. The right approach will depend on your age, retirement income needs, other assets and who you want to benefit.
At Apex Accountants, we can help you assess the potential IHT impact of your SIPP, review your wider estate plan, and coordinate your pension, tax and estate-planning decisions before the new rules take effect.
The inheritance of pension benefits may also trigger income tax, depending on the age of the deceased. Although IHT on pension funds may apply from April 2027, the income tax treatment of inherited pension benefits will continue to depend largely on the age of the deceased and the way the benefits are received:
There are special rules for when a pension scheme administrator (PSA) is directed to pay IHT on behalf of a beneficiary. In such cases, the payment is treated as an authorised payment and not taxed as income.
HMRC has published technical guidance explaining how inheritance tax, income tax, withholding notices and direct payments from pension schemes will interact. Where a pension scheme administrator pays IHT directly to HMRC under a pensions direct payment notice, the guidance sets out how that payment is treated and how it affects the amount received by the beneficiary. Further detailed guidance and support tools are expected before the rules take effect in April 2027.
This change will bring more complexity to an already difficult time for bereaved families. HMRC is introducing new information-sharing, withholding and payment processes for pension scheme administrators and personal representatives. Pension scheme administrators will generally need to provide valuation information within 28 days of a valid request, although estimated values may be used in some circumstances. A withholding notice can allow a personal representative to require a scheme to withhold up to 50% of a beneficiary’s pension entitlement where IHT may be due.
Critics of the policy, including industry experts, have expressed concern. They argue that the added complexity and strict six-month deadline could overwhelm executors, especially in cases with large or complex estates.
The changes to IHT April 2027 will make estate planning more important for people with significant pension savings. Reviewing your assets, pension nominations and available tax allowances now can help you understand your potential liability and prepare your beneficiaries for the new rules.
Here are some steps to consider:
The changes coming in April 2027 mark one of the most significant updates to the UK’s pension and inheritance tax rules in recent years. While most families will still not be affected by IHT, thousands more estates will now fall within its scope due to the inclusion of unused pension pots.
This means careful planning is essential—not just to manage tax liabilities but to reduce the administrative burden on your loved ones. Delays in dealing with IHT could cause financial pressure on families at an already challenging time.
Apex Accountants has been helping UK families with pension tax planning and estate management since 2006. Our experienced advisors understand the impact of IHT changes and offer tailored guidance to suit your situation.
We work closely with personal tax representatives, beneficiaries, and pension providers to ease the reporting burden and keep everything on track. Whether you’re preparing your estate or dealing with probate, we’re here to help.
From 6 April 2027, unused pension funds and death benefits are due to be brought into IHT scope under the confirmed 2024 policy — draft legislation details are still being clarified. Check beneficiary nominations and death-benefit structure now.
Unused defined-contribution pots and lump-sum death benefits are planned to be taxed within the estate’s IHT calculation rather than staying outside it. Pension scheme administrators will report to HMRC under the new process.
Review pension drawdown timing, beneficiary nomination forms, and whether retaining pension wealth remains efficient versus other assets. We model estate outcomes for clients now, before the rules land.
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