TL;DR
HMRC published its technical note on the April 2027 pension IHT reforms on 11 May 2026. From 6 April 2027, most unused pension funds and pension death benefits will be included in the value of a deceased person's estate for inheritance tax. The spousal exemption announced in Autumn Budget 2025 is preserved. Personal representatives, not pension scheme administrators, will be responsible for reporting and paying any IHT due. With 11 months until implementation, the new note provides the clearest picture yet of how the regime will work in practice.
HMRC published its Inheritance Tax on pensions: technical note on 11 May 2026, providing the most detailed picture yet of how the April 2027 reform will operate in practice. The reform, first announced by Chancellor Rachel Reeves in the 2024 Autumn Budget and legislated for in Finance Act 2026, brings most unused pension funds and pension death benefits within the value of a deceased person's estate for inheritance tax (IHT) purposes from 6 April 2027.
The technical note sets out the proposed approach to information sharing, tax collection, and the responsibilities of personal representatives, pension scheme administrators, and beneficiaries. With less than a year to implementation, the document is being closely studied by advisers, pension providers, and families with significant pension wealth.
What the technical note confirms
The technical note confirms several points that had been subject to ongoing consultation. From 6 April 2027, most unused pension funds and pension death benefits will be brought within the value of a deceased person's estate for IHT purposes, regardless of whether the pension scheme administrators or trustees have discretion over the payment of any death benefits. This closes what HMRC has described as a tax planning loophole, where pensions were increasingly used as wealth transfer vehicles rather than retirement income sources.
The note also confirms that personal representatives (PRs), typically the executors or administrators of an estate, will be responsible for reporting and paying any IHT due on the pension component. This is a reversal of the original 2024 proposal, which would have placed the obligation on pension scheme administrators (PSAs). Following industry consultation, HMRC accepted that PSAs would have no visibility of the wider estate and could not reasonably calculate the IHT due.
The spousal and charity exemptions remain
The existing IHT exemption for transfers between spouses and civil partners is preserved and extended to pensions. Pension assets left to a surviving spouse or civil partner will continue to be exempt from IHT even where those assets now form part of the estate under the 2027 rules. This was confirmed in the Autumn Budget 2025 and is now embedded in the technical note.
The exemption for charitable gifts is also preserved. Pension funds left to a UK-registered charity on death will remain IHT-free, and the existing 10% test, which reduces the IHT rate from 40% to 36% on the rest of the estate where at least 10% is left to charity, continues to apply.
Joint life annuities are out of scope. The technical note confirms that survivor rights paid from a joint life annuity are not part of the member's estate and are not subject to IHT. Death in service benefits payable from registered pension schemes are also excluded.
How many estates will be affected
According to HMRC's published estimates, of around 213,000 estates with inheritable pension wealth in the 2027 to 2028 tax year, approximately 10,500 estates, or around 1.5% of total UK deaths, will become liable for IHT where they would not previously have been. Around 8% of all estates each year will see additional IHT exposure as a direct result of the pension change.
For most estates, the existing nil-rate band of £325,000 and the residence nil-rate band of £175,000 will continue to mean no IHT liability. A married couple can pass on up to £1 million IHT-free where the residence band applies in full. Both thresholds are frozen until 2031.
The combined tax rate trap for over-75s
For pension members who die after age 75, beneficiaries face both IHT on the pension funds within the estate and income tax at their marginal rate on any subsequent drawdown. For a higher-rate or additional-rate taxpayer beneficiary, this can produce effective combined tax rates of 64% to 67%, and in extreme cases higher.
This combination does not apply to non-pension assets. The practical implication, set out in industry analysis from M&G Wealth, Royal London, and others, is that members over age 75 should often consider drawing pension funds in priority to other assets, which is a complete reversal of pre-2027 advice that favoured pension preservation for tax-free inheritance.
How payment will work
HMRC has set out a multi-stage process for reporting and paying the IHT due on pension assets. Personal representatives must identify what pension benefits the deceased held and notify the relevant pension scheme administrators of the death. Once notified, the scheme administrator begins its processes to determine benefit distribution and provide the PR with the values needed for the IHT calculation.
The Autumn Budget 2025 confirmed several payment options. The IHT can be paid from the wider estate before pension funds are released. Personal representatives can instruct PSAs to pay IHT directly to HMRC from the pension funds. Beneficiaries can also choose to receive the funds and settle the IHT with HMRC themselves, subject to PR agreement. PSAs must settle requested amounts within 35 days of receiving the request, provided the amount is at least £1,000.
To address concerns about estates with limited liquid assets, personal representatives can instruct PSAs to withhold up to 50% of taxable pension benefits for up to 15 months after the end of the month of death, giving PRs time to arrange payment without forcing rapid asset sales.
What to do in the 11 months before April 2027
The technical note does not change the substance of the reform, but it provides enough detail for advisers and families to plan in earnest. Practical steps cited in HMRC and industry guidance include reviewing the value of pension assets against the existing nil-rate bands; reviewing beneficiary nominations to confirm whether spouse, civil partner, or charity routes are still optimal; reviewing wills and lasting powers of attorney alongside pension nominations; and considering whether to draw pension funds earlier than originally planned, particularly for members approaching or over age 75.
HMRC has confirmed it will publish further secondary legislation, calculators, process maps, and guidance ahead of implementation. Advisers and providers are also expected to update beneficiary data systems and reporting processes through the second half of 2026 and the first quarter of 2027.
Editorial disclaimer: This article is for general information only and does not constitute financial, tax, or legal advice. Inheritance tax planning is highly dependent on individual circumstances. Anyone affected by these changes should seek advice from a qualified financial adviser and a solicitor experienced in estate planning before making decisions.
Frequently asked questions
When do the pension IHT changes take effect?
The changes apply to deaths occurring on or after 6 April 2027. Pension scheme administrators and personal representatives will not need to apply the new rules to deaths before that date.
Will my spouse pay IHT on my pension?
No. Pension assets passing to a surviving spouse or civil partner are exempt from IHT under the spousal exemption confirmed in the Autumn Budget 2025. The exemption requires the surviving spouse to be a long-term UK resident.
Does this affect existing pensions or only new contributions?
The reform applies to all unused pension funds at the date of death, regardless of when the contributions were made or the pension was established. There is no grandfathering of existing pots.
Who is responsible for paying the IHT on the pension?
Personal representatives, typically the executors or administrators of the estate, are responsible for reporting and paying the IHT. Pension scheme administrators must support this process by providing information and, where instructed, paying IHT directly from pension funds.
Are joint life annuities affected?
No. The technical note confirms that survivor rights paid from a joint life annuity are not part of the member's estate and are not subject to IHT under the new rules.
How we verified
This article draws on the HMRC Inheritance Tax on pensions: technical note published on 11 May 2026, the Autumn Budget 2025 supporting documents, Finance Act 2026, and industry analysis from Royal London, Legal & General, M&G Wealth, Womble Bond Dickinson, and The People's Pension. Estate value examples reflect the 2026/27 IHT nil-rate band of £325,000 and residence nil-rate band of £175,000, both frozen until 2031.
