Pension IHT 2027 Planner

From 6 April 2027, most unused DC pension funds and discretionary pension death benefits will count as part of the deceased's estate for Inheritance Tax. Personal representatives (not scheme administrators) are liable. The existing £325,000 nil-rate band and £175,000 residence nil-rate band still apply, tapered above £2M, and the 40% standard rate (or 36% for estates that leave ≥10% to charity) applies above them.

Unused defined-contribution (DC) pension funds and discretionary pension death benefits. Out of scope: dependant's scheme pensions, dependant's annuities without a guaranteed period (annuity income, not capital), charity nominations, and spouse/civil partner beneficiary transfers (full spousal exemption).

Yes. Pension funds left to a spouse or civil partner continue to pass free of IHT, regardless of the pension-in-estate rule. The survivor inherits the full pot; any IHT charge is deferred to the second death (and even then may be offset by the transferable nil-rate band and residence nil-rate band).

Yes — but only after you withdraw from the pension. Money inside a pension cannot be gifted. Once you draw down and pay income tax on the withdrawal, the money becomes a potentially exempt transfer (PET) when gifted; it falls fully outside the estate if you survive 7 years. Gifts made 3–7 years before death attract taper relief on the IHT charge above the nil-rate band.

It depends. Drawing down crystallises the pot and triggers income tax at your marginal rate (often 40% or 45%), potentially triggers the £10,000 Money Purchase Annual Allowance cap on future contributions, and if the proceeds sit in your estate they are still subject to IHT. A combined drawdown + gifting strategy (and surviving 7 years) is the clearest route to removing value from your eventual estate, but the income tax cost and gift-timing risk must be weighed. This planner models the trade-off.