Private and workplace pensions will be added to Inheritance Tax for the first time from April 2027, following a policy first announced by former Chancellor Rachel Reeves that has now become law. The change means pension pots will count as part of a person's estate when they die, making it easier to exceed the £325,000 threshold, or £500,000 including a main residence, with any excess taxed at 40%.
Law firm VWV notes that some details of the scheme are still being finalised. It said the change was announced at the Autumn Budget 2024 and consulted on through 2025, and that Finance Act 2026 received Royal Assent on 18 March 2026, making the necessary amendments to inheritance tax and pensions legislation.
Implementation timeline and guidance
According to VWV, the main information sharing regulations, setting out what pension schemes and executors must tell each other and by when, were laid in July 2026. Two further sets of regulations are expected before April 2027, dealing with schemes split into sub-schemes and with rules determining when a full inheritance tax account must be filed.
HMRC has said it will publish full guidance, templates and online tools during spring 2027, and has so far issued two technical notes, the first in May 2026 and a second in August 2026, explaining how the new rules are expected to operate. VWV also offered reassurance that the new rules apply only to deaths on or after 6 April 2027, with the current treatment applying for deaths before that date.
Four main exclusions
VWV set out four main exclusions to the pension Inheritance Tax. These are death in service benefits, which remain outside the estate but only cover benefits paid because the member was employed or working immediately before death; dependants' scheme pensions paid to a surviving spouse, civil partner, child or other dependant; joint life annuities where the survivor's annuity was bought together with the member's own lifetime annuity; and charity lump sum death benefits.
Separately, the usual inheritance tax exemptions still apply, with anything passing to a surviving spouse or civil partner, or to a registered charity, remaining exempt. VWV emphasised that this exemption does not extend to long-term unmarried partners, meaning a pension passing to a cohabiting partner may contribute to an inheritance tax liability where the same benefit passing to a spouse or civil partner would be exempt.
