Pension Inheritance Tax calculator

Until now, most pensions have sat outside your estate. The scheme pays out at its discretion, so the money was never legally yours. Finance Act 2026 changes that for deaths on or after 6 April 2027. The value of your unused pensions is treated as if you owned it the moment before you died, and added to your estate.

Nothing else about Inheritance Tax moves. The rate is still 40% (36% if you leave at least 10% to charity). The nil-rate bands are still £325,000 and £175,000, both frozen until April 2031, and both can be passed to a surviving spouse. What changes is the amount of your estate they have to cover.

If you’re unsure what kind of pension you have, ask the scheme what it would pay out if you died today, and in what form. That figure is broadly what goes into the estate.

Your age at death still decides whether your beneficiaries pay income tax on what they inherit. That rule hasn’t changed:

• Before 75: they normally pay no income tax. Lump sums must be within the £1,073,100 lump sum and death benefit allowance and paid within two years. Inheritance Tax is the only tax.
• 75 or over: whatever they draw is added to their income and taxed at their rate, on top of the Inheritance Tax.

To stop the same money being fully taxed twice, Finance Act 2026 added a relief (section 567B of ITEPA 2003). Income tax is only charged on what’s left after the pension’s share of the Inheritance Tax. Where the pension bears the full 40%, the combined rate for £100,000 of pension works out like this:

These are ceilings. The nil-rate bands are spread across the whole estate, so a pension usually bears less than the full 40%. HMRC’s examples share the bill out in proportion to value, and the calculator does the same.

1. A widow with a £500,000 pension

Her home is worth £500,000, she has £100,000 in savings and ISAs, and £500,000 left in drawdown. Her late husband left everything to her, so she has both nil-rate bands and both residence bands: £1,000,000 in all. She dies at 78 and her two children share everything.

• Before April 2027: her £600,000 estate is under £1,000,000, so there’s no Inheritance Tax. The children pay £179,460 of income tax drawing the pension over five years.
• From April 2027: the estate is £1,100,000. Inheritance Tax is £40,000, of which the pension’s share is £18,182. The children’s income tax falls to £172,187, because it’s charged on less.
• The family gets £32,727 less, 6.5% of the pension.

2. A single person who dies at 68

A £350,000 home, £100,000 of savings and a £300,000 pension. Their allowances are £500,000. Before 2027 the £450,000 estate pays £0. After, the £750,000 estate pays £100,000. Because they died before 75, there’s no income tax. The total tax on the pension is 33%, all of it Inheritance Tax.

3. The couple behind the “91% tax” headlines

This is the case NFU Mutual published in August 2026. A couple with £2,000,000 outside their pensions and a £700,000 pension, passing to an additional-rate taxpayer after the second death, at over 75.

• Before 2027 the estate is £2,000,000, with £1,000,000 of allowances. Inheritance Tax is £400,000.
• After, the estate is £2,700,000. That’s £700,000 over the £2m taper threshold, which wipes out the whole £350,000 residence band. Inheritance Tax is £820,000, so £420,000 more.
• The child then pays £219,333 of income tax on what the pension has left. Extra Inheritance Tax plus income tax is 91% of the pension. That’s the headline.
• But under today’s rules the child would already pay £315,000 of income tax on the same pension. What the 2027 change actually costs this family is £324,333, or 46% of the pension.

Both numbers are real, and they answer different questions. The calculator shows both, because “should I spend or give away more of my pension?” depends on the first, and “how much worse off does this leave us?” on the second.

The residence nil-rate band shrinks by £1 for every £2 your estate is worth above £2,000,000. From April 2027 the pension counts towards that £2,000,000. For a single person it’s gone by £2.35 million, and for a couple using both bands by £2.7 million.

Inside that zone, each extra £1 of pension costs 60p in Inheritance Tax: 40p on itself and 20p from the allowance it removes from the rest of the estate. If your beneficiaries then pay higher-rate income tax, the next pound you leave in the pension can be worth less than a fifth of a pound to them. The “next £10,000” figure in the calculator shows this for your numbers.

• Your executors (personal representatives) report the pensions and pay the tax, not the pension scheme. The beneficiaries are jointly liable for the tax on what they receive.
• The tax is due by the end of the sixth month after the death. Interest runs after that, and tax on pensions can’t be paid in instalments.
• Executors can tell a scheme to hold back up to 50% of each beneficiary’s payment for up to 15 months, so the money for the tax isn’t paid out first.
• They (or a beneficiary, for their own share) can also ask the scheme to pay the tax straight to HMRC. Each notice must be for at least £1,000, and the scheme pays within 35 days.

Executors will have to track down every pension, so a simple list of your schemes kept with your will saves them time. Keep your expression of wish forms up to date too.

None of these is right for everyone, and the amounts involved are often large enough to be worth paying for advice. The options people are weighing up:

• Spending more of it. If your pension is likely to outlast you, you can afford a higher income now. Use the retirement planner to see how much you could spend and still not run out, or compare withdrawal approaches in taking an income.
• Giving from surplus income. Regular gifts out of income you don’t need, which don’t reduce your standard of living, are exempt straight away. Other gifts escape Inheritance Tax if you live another seven years.
• Who you nominate. Pensions left to a spouse or civil partner are exempt on the first death. Leaving at least 10% of the estate to charity cuts the rate to 36%.
• Watching the £2m line. If the pension tips your estate over £2 million, drawing it down to stay below the line can be worth more than the income tax it costs.
• Covering the bill. Some families use life insurance written in trust to pay the Inheritance Tax.

The law is in place, but HMRC’s detailed guidance is still arriving. Technical Note 3 (expected autumn 2026) will cover how Inheritance Tax and income tax interact in practice, intestacy, charities and trusts. Final guidance is due in spring 2027, and HMRC has promised an online tool to help executors share the nil-rate band across pensions. We check the rules weekly and log every change on our rule updates page. Last checked: 14 October 2026.