Unspent pension pots will form part of someone's estate for inheritance tax purposes from April 2027, a change announced in the 2024 Autumn Budget1. The measure ends the treatment of pensions as outside the estate, which had allowed unspent pots to be left to beneficiaries without inheritance tax being charged on them1.
Inheritance tax is charged at 40% on the estate passed on when someone dies, and the estate includes property, possessions, savings and investments1. Everyone has a tax-free allowance of £325,000, known as the nil-rate band, which has remained the same since 2010-111. Since April 2017 an additional transferable allowance of £175,000 has applied where property is left to a family member; for 2026-27 that figure is £175,0001. In the 2025 Autumn Budget, the Chancellor confirmed that inheritance tax allowances will be frozen until 20311.
"it was announced in the 2024 Autumn Budget that unspent pension pots will form part of someone's estate for inheritance tax purposes from April 2027."
Married couples and civil partners can generally pass possessions and assets to each other free of inheritance tax, and the surviving partner can use both allowances where the first spouse to die did not use their full allowance1. In 2026-27, most married couples or civil partners can pass on up to £650,000, or £1m where the estate includes a home1. Some people whose partner died before 12 November 1974 inherit a reduced allowance, and those whose partner died before 22 March 1972 do not receive a double allowance1.
Money held in an Isa forms part of the estate on death, but since 3 December 2014 bereaved spouses and civil partners have been able to re-invest cash and investments held in their partner's Isa, taking interest, dividends and growth tax-free through an Additional Permitted Subscription1. Not all Isa providers accept these deposits1.
| Item | Figure |
|---|---|
| Standard inheritance tax rate | 40%1 |
| Nil-rate band | £325,000, unchanged since 2010-111 |
| Residential transferable allowance, 2026-27 | £175,0001 |
| Combined allowance for most married couples or civil partners, 2026-27 | £650,000, or £1m including a home1 |
Why it matters for households
From April 2027, the value of an unspent pension pot will be added to the rest of a person's assets when working out whether inheritance tax is due, so beneficiaries of a pot left by someone who dies on or after that date may face a bill where previously none arose1. The change sits alongside allowances that are frozen until 2031, meaning more estates may reach the £325,000 threshold over time1. Inheritance tax is usually paid from the estate, and heirs must pay by the end of the sixth month after death, after obtaining an inheritance tax reference number from HMRC, which should be applied for at least three weeks before payment1. Where tax is due on gifts made in the seven years before death, the recipients normally pay it, and if they do not, the amount comes out of the estate1.
What happens next
The pension measure takes effect from April 20271. Inheritance tax allowances are frozen until 20311. The rules on which estates must be reported depend on the date of death: for deaths on or after 1 January 2022, an estate is usually excepted if its value is below the current threshold, or is worth £650,000 or less with unused threshold transferred from a spouse or civil partner who died first, among other conditions1. Full details must still be sent in some cases, including where the deceased gave away more than £250,000 in the seven years before death, or held foreign assets worth more than £100,0001.
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