What Happens to Your UK Pension When You Die? (2026)

When a person with a UK defined-contribution (DC) pension dies, the remaining fund does not automatically pass under their will. It is held in a pension scheme, and what happens next depends on who was nominated, the age at death, and the rules of the scheme. The treatment is changing too, because unused pension funds are due to come within inheritance tax (IHT) from April 2027.

This guide sets out how DC death benefits work now, how the pre-75 and post-75 tax split applies to whoever inherits, and what the 2027 change means in plain terms. Defined-benefit (final salary) schemes follow different rules and are not the focus here.

The short version

• DC pots do not pass by will. The scheme administrator decides who receives the fund, guided by your nomination (expression of wish) form.
• Death before 75: benefits are generally paid free of income tax to the beneficiary, with lump sums tested against the lump sum and death benefit allowance of £1,073,100.
• Death at or after 75: the beneficiary pays income tax at their own marginal rate on whatever they draw, whether as income or a lump sum.
• Right now most DC pension death benefits sit outside the deceased's estate for IHT.
• From 6 April 2027 most unused pension funds and death benefits are due to be counted as part of the estate for IHT.
• Keeping your nomination form up to date is the single most practical step.

How DC death benefits are paid

A DC pension is a pot of money. On death, the scheme administrator normally holds discretion over who receives it, which is why the fund usually falls outside the deceased's estate under current rules. To guide that discretion, members complete a nomination or expression of wish form naming who they would like to benefit. The administrator is not strictly bound by it, but in practice a clear, current nomination is followed in the large majority of cases.

A beneficiary can typically take the inherited pot as a lump sum, as ongoing drawdown income, or use it to buy an annuity, subject to scheme rules. A nominated beneficiary does not have to be a spouse or relative. If no valid nomination exists, the administrator decides, and options for some beneficiaries can be more limited. Reviewing the form after marriage, divorce, a birth or a death keeps the instruction current.

Pre-75 versus post-75: the tax split for whoever inherits

The tax treatment of an inherited DC pension turns on the age of the member at death, not the age of the beneficiary. If the member dies before age 75, benefits are generally paid free of income tax to the beneficiary, whether taken as income or a lump sum. Lump sum death benefits are tested against the lump sum and death benefit allowance (LSDBA), set at £1,073,100. Anything paid as a lump sum above the available allowance is taxed at the beneficiary's marginal rate. Lump sums also usually need to be paid within two years of the scheme being told about the death to keep the tax-free treatment.

If the member dies at or after age 75, the beneficiary pays income tax at their own marginal rate on whatever they withdraw, whether that is regular drawdown income or a one-off lump sum. Drawing a large lump sum in a single tax year can push a beneficiary into a higher tax band, so spreading withdrawals across years is a common way to manage the bill.

The inheritance tax change from April 2027

At Autumn Budget 2024 the government announced that most unused pension funds and pension death benefits will be brought within the value of a deceased person's estate for inheritance tax. Following consultation, the position has been confirmed to apply to deaths occurring on or after 6 April 2027. Where someone dies before that date, the current rules continue to apply regardless of when benefits are actually paid out.

The change is intended to remove the advantage of using a pension mainly as a vehicle to pass on wealth rather than to fund retirement. Some benefits are excluded from the IHT charge, including death-in-service benefits and dependants' scheme pensions. The existing IHT exemptions are also kept, so benefits passing to a surviving spouse or civil partner, or to a registered charity, remain exempt. From 6 April 2027 personal representatives of the estate are responsible for reporting and paying any IHT due on the pension element, with scheme administrators required to support that process.

The income tax rules above are unchanged by this. From April 2027 a beneficiary inheriting a post-75 pot could in principle face both IHT on the value within the estate and income tax on what they later draw, depending on the figures and exemptions in play. Draft regulations and further HMRC guidance are expected through 2026.

Residence and cross-border points

IHT and pension rules differ by country of residence. A beneficiary or estate connected to more than one country may face tax in another jurisdiction, and double tax treaties and the UK's residence-based IHT regime affect the outcome. Figures and treaty positions change, so they are checked against official sources rather than assumed.

Pension death benefits, the pre-75 and post-75 tax split and the April 2027 IHT change interact in ways that depend on individual circumstances, so the figures and rules here are a starting point rather than a personal assessment.

This article is for general information only and does not constitute financial, tax or regulatory advice. Kaeltripton.com is not authorised or regulated by the FCA. Pension and tax rules differ by country of residence and change over time. Verify any figure with official sources such as GOV.UK, HMRC or the FCA, and take advice from a suitably authorised adviser in your country of residence before acting.

FAQ

Does my pension pass under my will?

No. A defined-contribution pension is held in a scheme, and the administrator usually decides who receives the fund using its discretion. Your nomination or expression of wish form guides that decision, which is why the pot generally sits outside your estate under current rules.

What is the tax difference between dying before 75 and after 75?

If you die before 75, DC benefits are generally paid free of income tax to the beneficiary, with lump sums tested against the £1,073,100 lump sum and death benefit allowance. If you die at 75 or over, the beneficiary pays income tax at their own marginal rate on what they withdraw.

When do pensions come within inheritance tax?

For deaths on or after 6 April 2027, most unused pension funds and death benefits are due to be counted as part of the deceased's estate for inheritance tax. Deaths before that date follow the current rules.

Are any death benefits excluded from the 2027 IHT change?

Yes. Death-in-service benefits and dependants' scheme pensions are excluded. Existing exemptions are kept, so benefits passing to a surviving spouse or civil partner, or to a registered charity, remain exempt from IHT.

Who pays the inheritance tax on the pension from 2027?

From 6 April 2027 the estate's personal representatives are responsible for reporting and paying any IHT due on the pension element, with pension scheme administrators required to support the process.