Pensions and UK inheritance tax from April 2027 — and what it means if you are American

GuideEdale Financial PlanningLast reviewed 18 min read

This guide is for anyone with a UK pension who expects to leave some of it behind, and particularly for Americans in Britain and British families with US retirement accounts. From 6 April 2027 most unused pension money forms part of the estate for UK inheritance tax, your executors rather than your pension scheme must report and pay it, and the six-month deadline has not moved. Nothing changes on the US side: a US citizen’s retirement accounts were already in their gross estate there.

What changes on 6 April 2027?

From 6 April 2027 the pension you have not spent is treated as part of your estate and can be taxed at 40% like any other asset. Until then most unused defined contribution funds and discretionary death benefits sit outside the estate, which is why a SIPP has often been the last pot a family touches.

Section 66 of the Act charges tax on certain pension interests; the operative provision is section 150A of the Inheritance Tax Act 1984. That section treats the member as beneficially entitled, immediately before death, to scheme property that must or may be used to pay relevant death benefits: pension death benefits, lump sum death benefits, and payments continuing after death. HMRC calls the amount the member’s “notional pension property”, valued at the date of death.[1][2][6] Section 67 governs liability for the tax on pension interests and section 68 the withholding of benefits and payment by the scheme administrator — the notices HMRC describes as new sections 226A and 226B of the 1984 Act. Sections 69 and 70 make connected amendments to the 1984 Act and to the income tax rules, and section 71 commences sections 66 to 70; HMRC states the charge applies to deaths on or after 6 April 2027.[1][5]

The design changed substantially between the Autumn Budget announcement of 30 October 2024 and the Act, so material written in 2024 or early 2025 may describe a scheme that no longer exists. In the government’s response of 21 July 2025 the duty to report and pay moved to personal representatives, death-in-service benefits moved wholly out of scope, and a withholding notice, a direct payment scheme and a clearance route were added; the start date did not move.[1][4][24] About 10,500 estates are expected to become liable for the first time in 2027-28, and 38,500 to pay more.[3]

A note on sourcing. The section numbers and headings are taken from the Act’s table of contents; the individual section pages on legislation.gov.uk were not available to us when this guide was prepared, so the Act is cited by section rather than quoted.[5] The account of section 150A and of the notices follows HMRC’s two technical notes and the July 2025 draft legislation.[1][2][6]

Which pension money is caught?

Unused funds and discretionary death benefits in registered UK schemes are caught; death-in-service lump sums, dependants’ scheme pensions, joint-life annuity continuations and anything passing to a spouse, civil partner or charity are not. Three categories of scheme are in scope: registered pension schemes, qualifying non-UK pension schemes (QNUPS) and section 615(3) schemes.[1] Defined benefit and collective money purchase death benefits are caught where the scheme has discretion; non-discretionary benefits in some public service schemes were already estate assets.[3]

Pension money in and out of the charge from 6 April 2027
In scopeExcluded by IHTA 1984 s.150A(6), or exempt
Uncrystallised and drawdown funds in registered schemes, including SIPPs and workplace pots[1]Death-in-service benefits for a member in employment or other work immediately before death[1]
Discretionary lump sums from defined benefit and collective money purchase schemes[3]Dependants’ scheme pensions[1]
QNUPS and section 615(3) schemes[1]Dependants’ or nominees’ annuities bought with the member’s own annuity[1]
Guarantee periods and payments continuing after death[1]Trivial commutation of a dependant’s pension; anything to a spouse, civil partner or charity[1][8]

The death-in-service exclusion is narrower than the phrase suggests. HMRC’s condition is that the member was “either directly employed or in other work of a particular description immediately before their death”, so benefits from former employments do not qualify, though the Government has since expanded the definition “by removing the requirement for individuals to have been an ‘active member’ of the scheme”.[24] Where that line falls for a long-term sick employee, a consultant or a director is unaddressed in the published material, so it is one for the scheme.

The spouse, civil partner and charity exemptions apply to the pension as to any other asset, under sections 18, 23, 24, 24A, 25 and 27 of the 1984 Act, but are claimed rather than netted off: personal representatives include the full value and then claim.[1][8] Section 18(2) caps the spouse exemption at £325,000 where the deceased was a long-term UK resident and the survivor is not, which can catch an American spouse of under ten years’ residence.[12] The Lords committee found the charge bites hardest on early deaths in defined contribution schemes, where dependent children cannot use the exemption.[23]

Familiar reliefs do not reach notional pension property: loss on sale relief, business property relief, agricultural property relief and the option to pay by instalments all fall away, because a pension is none of the kinds of property they require. Quick succession relief does apply, and the pension sits in the estate’s general component for the reduced 36% charity rate.[1][8]

Who reports and pays?

Your executors. The original plan put the duty on the pension scheme; the final law puts it on the personal representatives, with the scheme obliged to supply information and, on notice, to pay HMRC directly.

Personal representatives report the notional pension property on the inheritance tax account and are liable for the tax; beneficiaries become jointly and severally liable once benefits vest. A scheme administrator “will not be liable for any Inheritance Tax” unless it fails to act on a valid withholding or payment notice.[1][2]

Deadlines for pensions and inheritance tax from April 2027
StepDeadline
Scheme provides the value and basic information28 days from the request[1]
Scheme pays an amount in a valid payment notice35 days from receipt[2]
Inheritance tax dueEnd of the sixth month after the month of death, then interest at 7.75%[19]
Executors report that the lump sum and death benefit allowance is exceededLater of 13 months after death, or 30 days after becoming aware[1][2]

Two mechanisms bridge the gap between a pension not yet paid out and a bill that is due. A withholding notice under section 226A can require a scheme to hold back up to 50% of a beneficiary’s non-excluded, non-exempt entitlement until the tax and interest are paid or 15 months after the end of the month of death, whichever is first; HMRC says it “is not intended to be used routinely or on a precautionary basis”. The pensions direct payment scheme under section 226B lets executors or beneficiaries require a scheme to pay tax of at least £1,000 direct to HMRC within 35 days, which reduces the benefit, so income tax falls on what is left. Clearance can be claimed on form IHT30 once 12 months have passed since death.[1][2]

Whether six months is long enough for pension assets is openly disputed. The House of Lords Finance Bill Sub-Committee reported on 28 January 2026 that it did “not consider it realistic” to expect personal representatives to meet the six-month deadline on pension assets, and recommended 12 months for those assets for a transitional period, a soft landing of at least two years in which late payment interest and penalties are suspended, and a statutory safe harbour.[23] On 27 March 2026 the Exchequer Secretary to the Treasury replied that “the Government does not intend to change the existing, longstanding deadlines”.[24] Both positions stand as at October 2026.

How do the nil-rate bands apply?

The pension gets no allowance of its own. It is added to the rest of the estate, the £325,000 nil-rate band is shared across the whole of it, and because the pension raises the estate’s value it can taper away the £175,000 residence nil-rate band. Both bands are frozen to 2030-31 and both are transferable between spouses and civil partners.[7] Personal representatives apportion the band across the estate, the pension included, following the standard inheritance tax procedures, and HMRC has said it “will create an online tool to help personal representatives determine the amount of nil rate band attributable to notional pension property”; that tool does not yet exist.[2][4]

The taper matters more than it looks. Under section 8D the residence band is reduced by £1 for every £2 by which the estate exceeds £2,000,000, measured after liabilities but before exemptions and reliefs.[9] Because section 150A treats the member as beneficially entitled to the notional pension property immediately before death, that value forms part of the measure, so a pension can cost residence band as well as being taxed itself. This follows from reading the two sections together; neither technical note addresses the point, so it is inference from the legislation and not an HMRC statement.

What is the combined rate after 75?

The two taxes stack, but not on the same money. Inheritance tax takes 40% first; the beneficiary’s income tax then applies only to what is left. On a fully taxable pot that is 52% for a basic rate heir, 64% for a higher rate heir and 67% for an additional rate heir.

Whether a death benefit is taxable income turns on the member’s age at death. Where the member died under 75, most lump sums are tax-free if paid within two years of the scheme being notified and within the lump sum and death benefit allowance of £1,073,100; at 75 or over, benefits are taxable as the recipient’s pension income.[14][15] The new relief is that “if Inheritance Tax is paid in relation to death benefits, the portion of the benefits corresponding to the Inheritance Tax (and interest) paid does not count towards the beneficiary’s taxable income”, however the tax is funded.[1] The combined rate is therefore 40% plus 60% of the beneficiary’s marginal rate. The table below is our own arithmetic from official rates, not an HMRC-published figure, and it assumes no band or exemption is available against the pension.

Illustrative combined tax on £100,000 of inherited pension, death at 75 or over, 2026/27 rates for England, Wales and Northern Ireland
Beneficiary’s positionInheritance taxTaxable after itIncome taxTotalCombined
Basic rate, 20%£40,000£60,000£12,000£52,00052%
Higher rate, 40%£40,000£60,000£24,000£64,00064%
Additional rate, 45%£40,000£60,000£27,000£67,00067%
Income in the £100,000–£125,140 personal allowance taper, 60% effective[18]£40,000£60,000£36,000£76,00076%
Member died under 75, paid within two years and within the allowance[15]£40,000–£0£40,00040%

Two caveats. The 76% row is a consequence of the personal allowance taper, not a separate rate of tax.[18] And a large benefit drawn in one year pushes a beneficiary up through the bands, so the blended rate on a real pot normally sits between these rows. Where a benefit goes to a non-qualifying person, such as a company or a non-bare trustee, the 45% special lump sum death benefits charge applies instead.[1][17]

Does it apply if I am American?

Yes, if you hold a UK pension. A SIPP or workplace pension is a UK-established registered scheme, so it is in scope whether or not you are a long-term UK resident. US citizenship does not exempt you, and the United States has made no matching change.

The residence test decides the reach beyond the UK. A long-term UK resident is someone UK tax resident for at least 10 of the previous 20 tax years, under section 6A of the 1984 Act.[11] For a long-term UK resident, notional pension property in a registered scheme, a QNUPS or a section 615(3) scheme is in charge wherever the scheme is situated; for anyone else, only pensions established in the UK are caught.[1] An American two years in is outside the charge on a non-UK pension but inside it on their UK SIPP; one fifteen years in is caught on in-scope schemes abroad too. From 6 April 2025 a long-term UK resident is also treated as having deemed UK domicile for the post-1975 estate tax conventions, including the US convention.[20]

For a US citizen or resident, retirement accounts have always been in the gross estate: Form 706 reports annuities, IRAs and qualified plans such as 401(k)s on Schedule I, and the gross estate includes property wherever situated.[25] April 2027 adds a UK charge to money the US already counted.

How does the 1978 treaty work?

The 1978 convention has no pensions article, so a pension falls into its general “other property” category under Article 5(1). For a US national domiciled in the UK for treaty purposes, the UK taxes first and the United States gives the credit, collecting only any excess US tax.

The instrument is the convention signed at London on 19 October 1978, in force since 1979 and given effect by SI 1979/1454.[21] Article 5(1) provides that property is not taxable in the other state where the decedent was domiciled in one of them – unless they were a national of that other state, an exception the Joint Committee on Taxation says “prevents a US citizen domiciled in the UK from escaping US taxation”.[22]

Article 9 sets the order. Its first tier credits tax on immovable property and on business property of a permanent establishment, and a pension is neither. The second tier, Article 9(1)(b), applies where the United Kingdom taxes other property and the decedent was a US national domiciled in the United Kingdom: the United States credits against its own tax an amount equal to the UK tax paid – the citizenship country yielding primary jurisdiction and collecting only any excess, in the Joint Committee’s summary.[21][22] For most households the ordering is academic: the US basic exclusion amount is $15,000,000 per person in 2026, so a typical UK-resident American family owes no US estate tax and the UK charge is the whole cost.[25][26] The credit runs from UK tax against US tax, not the reverse.

One asymmetry has no treaty fix. The convention covers death taxes only, and the UK’s new relief – inheritance tax paid reducing the beneficiary’s taxable pension income – has no US counterpart for foreign death taxes: section 691(c) of the Internal Revenue Code allows a deduction for estate tax attributable to income in respect of a decedent, but only for tax imposed under section 2001 or 2101, the federal estate tax and not a foreign one.[27] A US beneficiary can therefore meet UK inheritance tax, UK income tax and US income tax on the same pension, with foreign tax credits under the 2001 income tax convention the only relief for the income layer. That is a question for a cross-border accountant on the facts, not a settled conclusion.

Are a SIPP and an IRA the same?

No. From April 2027 the SIPP is expressly inside the UK inheritance tax estate under section 150A. The UK position of a US IRA or 401(k) is not settled by that section, and HMRC’s guidance on international cases has not been published. Both are already inside the US gross estate.

The three categories named in the legislation and by HMRC are registered pension schemes, qualifying non-UK pension schemes and section 615(3) schemes.[1] A QNUPS must be tax-recognised and meet the regulatory requirements of its country of establishment, or, where there is no such system, pay 70% of the member’s funds as pension income for life.[13] HMRC’s QNUPS guidance does not mention IRAs or 401(k) plans and directs questions to HMRC Technical, and neither technical note gives a worked example for US plan types.[1][13] We therefore do not say either way whether a US retirement account is within section 150A; HMRC’s third technical note, expected in autumn 2026, is to cover international issues.[2]

Whether section 150A reaches a US retirement account is a question of fact and law on which published guidance does not yet exist. The income tax treatment pulls the other way: an inherited IRA is drained under the SECURE Act rules and every distribution is taxable, while a UK death benefit from a member who died under 75 is often tax-free – see inheriting a US IRA while living in the UK.

What is still to be published?

A good deal, so anything written now, this guide included, should be read against what follows: technical note 3, expected autumn 2026, covering international issues, the interaction with income tax, intestacy, and charities and trusts; the final information-sharing regulations, not laid in final form as at technical note 1; the online nil-rate band apportionment tool, promised but not built; HMRC manual guidance, the Inheritance Tax Manual’s pensions pages carrying no April 2027 content and technical note 1 saying in terms that it “is not draft guidance”; and final guidance and the remaining consequential amendments, promised for spring 2027.[1][2][16]

Worked example: a SIPP, an IRA and the April 2027 charge

Fictional household, illustrative only. Dan Meredith, 68 and a US citizen, and Sarah Meredith, 66 and British, married and resident in England since 2009, so both long-term UK residents. Home £850,000 to their two children; Dan’s SIPP £620,000; Dan’s traditional IRA $410,000, about £315,000 at $1.30; Sarah’s workplace pot £240,000; ISAs and investments £310,000; cash £60,000. Dan dies at 78 and Sarah at 88, both after April 2027 and after age 75, everything passing to Sarah on the first death. Values and 2026/27 rates are held flat in today’s money with no investment return assumed – an assumption, not a forecast. One child is a 40% taxpayer and the other 20%, each drawing gradually enough to stay at that rate. The figures are our own arithmetic from official rates, not output from Edale’s planner; results are not guaranteed and tax rules change. Nothing here is a recommendation to draw, gift or rearrange anything.

Second-death estate and UK inheritance tax, three illustrative cases
CaseEstateBands availableInheritance tax
Pensions outside the estate (the position before April 2027)£1,220,000£1,000,000£88,000
SIPP and workplace pension inside the estate (April 2027 onwards)£2,080,000£960,000£448,000
As above, after ten years of drawing and gifting £24,000 a year gross from the SIPP£1,840,000£1,000,000£336,000

Bringing the two UK pensions into the estate adds £360,000 of inheritance tax on £860,000 of pension: a marginal 42%, not 40%, because the estate crosses £2,000,000 and £40,000 of residence band is withdrawn. The children then pay income tax, Sarah having died after 75. Taking the allowances as used against the other assets – the apportionment mechanics are still to be published – each child’s £430,000 share bears £172,000 of inheritance tax and leaves £258,000 taxable: £103,200 for the 40% child, 64% in all, and £51,600 for the 20% child, 52%.

Dan’s IRA is left out deliberately, because its position under section 150A is unresolved. Were it in charge, the estate would be about £2,395,000, the residence band £152,500 and the tax about £637,000 – £189,000 more on £315,000 of IRA, a marginal 60%.

The third row is one scenario among many, not a recommendation. Dan draws an extra £24,000 a year gross from the SIPP from 68 to 78, with £20,000 of other taxable income so it is taxed at 20%: £48,000 of income tax over ten years and £192,000 given away, £9,600 to each child a year, within the 2026 US annual exclusion of $19,000 per recipient.[26] Inheritance tax falls to £336,000 and the children’s income tax to £111,600, so the three taxes come to £495,600 against £602,800 in the second row. Against that, the £192,000 is gone, and the three conditions for the normal expenditure out of income exemption must be met in fact and evidenced.[10] Whether this suits a household depends on its own figures, and advice should be taken.

How the Edale Wealth Hub helps

The April 2027 change makes the age at which someone dies part of the arithmetic of an estate. Edale’s planner follows a household to the second death, carries unused nil-rate bands to the survivor, applies the taper above £2,000,000, and brings unused pensions into the estate from April 2027, so an adviser and client can see the UK inheritance tax at each possible age of death rather than a single figure. Gifts and the seven-year rule are modelled alongside it. US estate tax is not modelled: the US side — the exclusion amount, Form 706 and the 1978 treaty credit — has to be worked through with a US attorney or accountant against the UK figures. Scenarios sit side by side, so different orders of drawing on pots can be compared on the same assumptions. The outputs are planning summaries to discuss with an accountant or attorney, not tax returns or legal documents. Read more about the cashflow planner, see our guide to US–UK wealth planning, or arrange a conversation.

Frequently asked questions

Will my pension be taxed twice from April 2027?

Not on the same money. Inheritance tax is charged first, and the part of the benefit matching the tax paid is not counted as the beneficiary’s taxable income. Where the member died at 75 or over the combined effect is about 52%, 64% or 67%, depending on the beneficiary’s rate; under 75 it is usually 40% and no more.

Who pays the inheritance tax on my pension?

Your personal representatives report it and are liable for it, and beneficiaries become jointly and severally liable once benefits vest. The scheme is not liable in the normal case, but must supply information and, on a valid payment notice, pay HMRC direct. The tax is due by the end of the sixth month after the month of death.

Does the change apply to my SIPP if I moved to the UK recently?

Yes. A SIPP is a UK-established registered scheme, so it is in charge whether or not you are a long-term UK resident. Pensions established outside the UK are caught only once you are a long-term UK resident: UK tax resident for at least 10 of the previous 20 tax years.

Is my US IRA or 401(k) caught?

That is unresolved. The charge reaches registered pension schemes, qualifying non-UK pension schemes and section 615(3) schemes, and HMRC’s guidance on qualifying non-UK schemes does not mention US plan types. A third technical note, due autumn 2026, is to cover international issues. The account is already in the US gross estate.

Does leaving my pension to my husband, wife or civil partner still avoid the charge?

Yes. Transfers to a spouse or civil partner and to charities remain exempt, applied to the pension as to any other asset. The exemption is capped at £325,000 where the deceased was a long-term UK resident and the survivor is not. Leaving the pension to a spouse defers the charge rather than cancelling it, because the survivor’s estate meets the same rules.

Will UK inheritance tax on my pension be credited against US estate tax?

Under Article 9(1)(b) of the 1978 convention, where the deceased was a US national domiciled in the UK, the United States credits the UK tax on that property and collects only any excess. Most families sit below the 2026 US exclusion of $15,000,000, so no US estate tax arises, and there is no equivalent credit for the income tax layer.

Sources

  1. HMRC — Technical note: Inheritance Tax on pensions (accessed October 2026)
  2. HMRC — Technical note 2: further information on Inheritance Tax and pensions (accessed October 2026)
  3. HM Treasury and HMRC — Inheritance Tax: unused pension funds and death benefits (accessed October 2026)
  4. HMRC — Inheritance Tax on pensions: liability, reporting and payment, summary of responses (accessed October 2026)
  5. legislation.gov.uk — Finance Act 2026 (c. 11), contents, Part 2 (sections 66 to 71) (accessed October 2026)
  6. HMRC — Draft legislation: Inheritance Tax on pension interests (July 2025) (accessed October 2026)
  7. HMRC — Inheritance Tax thresholds (accessed October 2026)
  8. GOV.UK — How Inheritance Tax works: thresholds, rules and allowances (accessed October 2026)
  9. HMRC — Inheritance Tax Manual IHTM46023: calculating the RNRB, the taper threshold (accessed October 2026)
  10. HMRC — Inheritance Tax Manual IHTM14231: normal expenditure out of income (accessed October 2026)
  11. HMRC — Inheritance Tax Manual IHTM47020: long-term UK residence test (accessed October 2026)
  12. HMRC — Inheritance Tax Manual IHTM11033: spouse or civil partner exemption, the limited exemption (accessed October 2026)
  13. HMRC — Inheritance Tax Manual IHTM17025: qualifying non-UK pension schemes (accessed October 2026)
  14. GOV.UK — Find out the rules about Individual Lump Sum Allowances (accessed October 2026)
  15. GOV.UK — Tax on a private pension you inherit (accessed October 2026)
  16. HMRC — Inheritance Tax Manual IHTM17000: Pensions, contents (accessed October 2026)
  17. HMRC — Pensions Tax Manual PTM073010: tax on authorised lump sum death benefits (accessed October 2026)
  18. HMRC — Income Tax rates and allowances: current and previous tax years (accessed October 2026)
  19. HMRC — Interest rates for late and early payments (accessed October 2026)
  20. GOV.UK — Inheritance Tax: Double Taxation Relief (accessed October 2026)
  21. legislation.gov.uk — Double Taxation Relief (Taxes on Estates of Deceased Persons and on Gifts) (United States of America) Order 1979, SI 1979/1454 (accessed October 2026)
  22. Joint Committee on Taxation — Explanation of proposed estate and gift tax treaty between the United States and the United Kingdom (JCS-23-79) (accessed October 2026)
  23. House of Lords Economic Affairs Committee, Finance Bill Sub-Committee — Inheritance tax measures: unused pension funds and agricultural and business property reliefs (HL Paper 250) (accessed October 2026)
  24. HM Treasury — Letter from the Exchequer Secretary to the Treasury responding to the Finance Bill Sub-Committee, 27 March 2026 (accessed October 2026)
  25. IRS — Instructions for Form 706 (accessed October 2026)
  26. IRS — IRS releases tax inflation adjustments for tax year 2026 (accessed October 2026)
  27. Legal Information Institute — 26 U.S. Code § 691, Recipients of income in respect of decedents (accessed October 2026)