Bypass Trust Calculator UK 2026

A bypass trust is a discretionary trust set up to receive pension death benefit lump sums, keeping them outside the beneficiary's estate for inheritance tax purposes. When the pension holder dies, the pension trustees pay the lump sum into the bypass trust rather than directly to the family, preventing the funds from being counted in the family member's estate on their later death.

The 2027 proposed changes aim to include unused pension funds in the deceased's estate for IHT, which would significantly change the landscape. Currently (before 2027), pension death benefits paid as lump sums to a bypass trust are outside the estate. Post-2027, HMRC may tax the pension at the deceased's estate level — a bypass trust would no longer provide the same benefit. Detailed rules were still being consulted on in early 2026.

A bypass trust is a type of discretionary trust — the trustees have discretion over how and when to distribute the funds to beneficiaries. A bypass trust specifically receives pension death benefits (or occasionally life insurance proceeds) to keep them outside beneficiaries' estates. The word 'bypass' refers to bypassing the beneficiary's estate on their eventual death.

Common beneficiaries include: spouse/civil partner (though this must be carefully structured to avoid the funds being treated as their own assets), children, grandchildren, and charities. The trustees (who hold legal title) can make flexible distributions based on each beneficiary's circumstances and tax position at the time.

Yes — a bypass trust is a complex legal document that should be drafted by a solicitor specialising in trusts and estates planning, ideally working alongside an IFA who advises on pension planning. The trust must be properly constituted to ensure the pension death benefits are validly paid into it and to avoid HMRC challenges. Costs typically range from £500–£2,000 for initial setup.