From April 2027, the way inheritance tax (IHT) is calculated in the UK is due to change. For the first time, unused pension savings will be included when working out the total value of someone’s estate.

Today, pensions sit outside the IHT calculation. In most cases, they can be passed on to beneficiaries without forming part of the estate for tax purposes. Under the new rules, the value of any remaining pension funds at death will be added to the rest of the estate to determine whether inheritance tax is due.

That matters because inheritance tax is charged at 40% on the value of an estate above the available tax-free allowances:

• £325,000 for most people

• Up to £500,000 if a main home is left to a direct descendant

• Transfers between spouses or civil partners remain exempt

From April 2027, pension assets will count towards these totals.

The six-month rule – and what’s being discussed

At present, inheritance tax is generally due within six months of death. Interest applies to any late payments. With pensions becoming part of the estate, responsibility for reporting and paying IHT on pension assets will sit with the person administering the estate (often a family member acting as executor or personal representative), rather than with pension providers. A House of Lords committee has recently examined whether the existing six-month deadline is workable in this new context. It has suggested a number of practical measures to help families and executors manage the process, including:

• Extending the payment window for IHT on pensions from six months to 12 months

• Temporarily suspending interest and penalties while the new system beds in

• Waiving interest where delays are outside a family’s control

• Ensuring guidance is clear and accessible before the changes take effect

• Making sure tools such as the Pensions Dashboard can be used by those administering an estate

These are recommendations rather than law. The government is still finalising the detailed rules, and further guidance is expected over the next year.

What this means in practice

For most people, this is not an immediate change. The new rules are due to start in April 2027. However, they do underline how important it is that estates are straightforward to administer. Where information is missing or unclear, the process can become slower and more stressful for those left behind. Even under today’s rules, executors often have to locate multiple bank accounts, investments, pensions and policies. When pensions are added into the inheritance tax calculation, having clear records becomes even more valuable.

Simple steps that can make a real difference

There is no need to take rushed decisions. But there are some practical, low-effort steps that can help reduce complexity for loved ones in the future:

• Have a clear, up-to-date will that sets out how assets should be distributed and who will administer the estate.

• Keep a simple record of assets: a list of bank accounts, investments, pensions, and insurance policies – with provider names and reference numbers – can save significant time.

• Check pension nominations as pension death benefits are guided by nomination forms. Reviewing these periodically helps ensure benefits go where you intend.

• Store key information securely and let trusted people know where important documents are kept.

These steps don’t change the tax position on their own, but they can materially reduce the burden on those dealing with an estate at a difficult time.

The rules around inheritance tax and pensions are evolving. As the government publishes further detail, it will become clearer exactly how the new framework will work in practice.

In the meantime, understanding what is changing – and keeping personal affairs well organised – can help families feel more prepared for the years ahead.

Tools and further support

👉 Click here to read our Inheritance Tax Guide

You can also visit the official Government website for up-to-date guidance on Inheritance Tax thresholds, rules and allowances. Alternatively, leave your details in the form below and one of our team will be in touch for a no-obligation conversation

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only. The content was accurate at the time of writing, changes in circumstances, regulation and legislation after the time of publication may impact on the accuracy of the article. This information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change and tax implications will be based on your individual circumstances. The Financial Conduct Authority does not regulate advice on taxation, Trusts, Estate Planning or Will writing.

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FP2026-048 – Last updated January 2026