When you die, what happens to your pension depends on its type and your age at death. With a defined-contribution pot, if you die before 75 your beneficiaries usually receive it free of income tax; from 75 they pay income tax at their own rate. In 2026 most pensions still sit outside your estate for Inheritance Tax (IHT) – but from 6 April 2027 most unused pension funds will be brought into the estate, so IHT at up to 40% could apply.
Related reads: inheritance tax planning and our SIPP guide.
The short answer: it depends on the pension and your age
There is no single rule for “your pension” because the UK runs several very different systems. A workplace or personal defined-contribution (DC) pot – a SIPP, a stakeholder plan or a modern auto-enrolment scheme – is a pot of money that can pass to whoever you nominate. A defined-benefit (DB) or “final salary” pension instead promises an income, and on death it typically pays a reduced pension to a spouse or dependant rather than a cash pot. The State Pension is different again: it generally stops at death, though a survivor may inherit part of it or claim bereavement support. The rest of this guide walks through each one, and the big change coming in April 2027.
Defined-contribution pots: the age-75 rule
For DC pensions, the single most important factor in 2026 is the age you die. The split is set at age 75 and it determines how your beneficiaries are taxed on what they receive.
- Death before age 75: benefits can usually be paid to your beneficiaries free of income tax, whether taken as a lump sum or as income. The scheme must normally be told and the benefits designated within two years of the provider being notified, or tax can apply.
- Death at or after age 75: whatever your beneficiaries draw – lump sum, drawdown income or annuity – is taxed at their own marginal rate of income tax. A basic-rate beneficiary pays 20%; a large lump sum could push them into higher or additional rates in that tax year.
Because of this, beneficiaries who inherit from someone who died at 75 or over often spread withdrawals over several tax years rather than taking one big taxable lump. Sources: M&G and Royal London for advisers.
Tax treatment at a glance
| Situation (2026) | Income tax for beneficiary | IHT position in 2026 |
|---|---|---|
| DC pot, died before 75 | Usually none (if designated within 2 years) | Generally outside the estate |
| DC pot, died 75 or over | Beneficiary’s marginal income-tax rate | Generally outside the estate |
| DB spouse’s pension | Taxable as the survivor’s income (PAYE) | Outside the estate |
| State Pension | Stops at death; inherited amounts taxable | Not part of a pot to inherit |
Why your expression-of-wish form matters more than your will
Most DC pensions are held under a discretionary trust, which is precisely why they have sat outside the estate for IHT. The trade-off is that the scheme trustees – not your will – decide who receives the money. They follow your expression-of-wish (or “nomination”) form as their guide. If that form is missing, decades out of date, or names an ex-partner, the trustees may pay the wrong person or face delays.
There is a second reason to keep it current: only a named dependant or nominee can usually keep the pot invested as beneficiary drawdown. If no one is nominated, the trustees may be limited to paying a lump sum, removing a valuable option. Reviewing the form after marriage, divorce, a birth or a death costs nothing and takes minutes.
Lump sum, beneficiary drawdown or annuity?
A nominated beneficiary of a DC pot generally has three ways to take the money, each with different flexibility and tax timing.
| Option for beneficiary | How it works | Things to weigh |
|---|---|---|
| Lump sum | The whole pot paid out in one go | Simple, but if death was at 75+ the full amount is taxed in one year |
| Beneficiary drawdown | Pot stays invested; income drawn flexibly | Spreads any tax; stays outside the beneficiary’s own estate in 2026; needs a nomination |
| Beneficiary annuity | Pot buys a guaranteed income | Certainty of income, but less flexible and usually irreversible |
Defined-benefit schemes: a pension for those left behind
Final-salary and career-average schemes rarely pass on a cash pot. Instead they typically pay a survivor’s pension to a spouse, civil partner or sometimes a financially dependent partner – often around half of the member’s pension, though each scheme’s rules differ. Children may receive a dependant’s pension while in education.
If the member dies before retiring, many schemes pay a lump-sum death-in-service benefit (commonly a multiple of salary) plus the survivor’s pension. These survivor pensions are taxed as the recipient’s income through PAYE. Importantly, the government has confirmed that genuine death-in-service benefits from a registered scheme will stay outside the estate even after the April 2027 changes.
The State Pension on death
Your State Pension normally stops when you die – it is not a pot that can be inherited. A survivor’s position depends on when each of you reached State Pension age. Under the old system (reached State Pension age before 6 April 2016), a spouse may inherit some additional State Pension or basic pension. Under the new State Pension, inheritance is much more limited, though a survivor can sometimes inherit a portion of any deferred or protected amount.
Separately, working-age survivors may claim Bereavement Support Payment. In 2026/27 the higher rate pays a £3,500 lump sum plus 18 monthly payments of £350; the standard rate pays a £2,500 lump sum plus 18 payments of £100. Use the Tell Us Once service to notify DWP. See gov.uk on inheriting State Pension.
The big change: IHT on pensions from 6 April 2027
Announced in the October 2024 Budget and confirmed by HMRC’s technical work in 2026, the rules change fundamentally from 6 April 2027. From that date, most unused pension funds and pension death benefits will be brought into your estate for Inheritance Tax. After decades of pensions sitting outside the estate, this is a major shift.
What it means in practice:
- Your pension value will be added to the rest of your estate. If the total exceeds your available allowances, IHT at 40% may be due on the excess.
- The nil-rate band stays at £325,000 and the residence nil-rate band at £175,000, both frozen until 2030/31. Unused allowances still transfer between spouses.
- The spouse/civil-partner exemption survives: pensions left to a surviving spouse or civil partner remain IHT-free, as do gifts to charity and genuine death-in-service benefits.
- The age-75 income-tax rule still applies on top. So a pension inherited by a non-exempt beneficiary after death at 75+ could face IHT and then income tax on the remainder.
- From April 2027, personal representatives will be responsible for reporting and paying any IHT on unused pension funds.
Sources: M&G technical note and Royal London.
How people are responding
The chart below illustrates the headline concern: a pension that today can pass on in full may, from April 2027, be reduced by IHT before it reaches a non-exempt beneficiary such as an adult child.
Common responses being discussed include reviewing nomination forms, revisiting the order in which different assets are spent in retirement, considering gifting within existing IHT rules, and using the unlimited spouse exemption. These are general observations, not recommendations – the right approach is highly personal and depends on your full circumstances.
What to check now
- Confirm your expression-of-wish form is current with every pension provider.
- Know whether each pension is DC or DB, and roughly what each pays on death.
- Keep a simple list of all your pensions and providers where your family can find it.
- Note the age-75 rule and the April 2027 IHT change when you next review your estate.
Frequently asked questions
Is my pension tax-free for my family if I die?
For a defined-contribution pot in 2026, if you die before age 75 your beneficiaries usually receive it free of income tax. If you die at 75 or over, they pay income tax at their own marginal rate on whatever they draw. From 6 April 2027, IHT may also apply on top for non-exempt beneficiaries.
Does my pension count towards Inheritance Tax in 2026?
Generally no. In the 2026/27 tax year most pensions sit outside your estate for IHT because they are held under discretionary trust. This changes from 6 April 2027, when most unused pension funds and death benefits will be brought into the estate for IHT.
Can my spouse inherit my pension without paying IHT after 2027?
Yes. The spouse and civil-partner exemption is unlimited and survives the April 2027 changes, so a pension left to a surviving spouse or civil partner remains free of Inheritance Tax. Gifts to charity and genuine death-in-service benefits also stay exempt.
What happens to my State Pension when I die?
Your State Pension normally stops at death. A surviving spouse may inherit a limited amount depending on whether you were on the old or new system, and working-age survivors may claim Bereavement Support Payment. Notify DWP promptly using the Tell Us Once service.
Why is my expression-of-wish form so important?
Because pension scheme trustees – not your will – decide who receives a DC pot, and they use your nomination form as their guide. An out-of-date or missing form can send money to the wrong person, cause delays, or limit beneficiaries to a lump sum instead of flexible drawdown.
Last reviewed: June 2026. This article is general information about UK pension and Inheritance Tax rules, not personal financial, tax or legal advice. Rules are complex and changing – particularly ahead of April 2027 – so consider speaking to a regulated financial adviser or visiting MoneyHelper before acting.