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Inheritance Tax on Pension Calculator

Model the 6 April 2027 pension IHT rules – including the 75+ income tax double charge

Last updated: June 2026

Property, savings, investments and possessions, before any pension.
Defined-contribution funds and lump-sum death benefits (not death-in-service or dependant DB pensions).

From 6 April 2027, most unused pension funds and lump-sum death benefits will be brought inside your estate for Inheritance Tax (IHT) for the first time. For decades, defined-contribution pensions sat outside the estate and could be passed on tax-efficiently. The Autumn 2024 Budget changed that, and this inheritance tax on pension calculator shows what the new rules could cost your family. It is built for anyone with a sizeable defined-contribution pension, SIPP or drawdown pot who wants to understand their potential 2027 IHT exposure, and for those planning gifts, spousal arrangements or charitable giving before the rules bite.

The tool compares your Inheritance Tax before and from 6 April 2027, isolates the IHT falling on the pension itself, and layers on the income tax a beneficiary pays when the member dies aged 75 or over – the so-called “double tax” that can push the effective rate on a pension well above 40%. It uses the frozen 2026/27 allowances and the standard 40% IHT rate.

How the pension Inheritance Tax calculation works

  • Nil-rate band: the first £325,000 of your estate is taxed at 0%.
  • Residence nil-rate band: an extra £175,000 if you leave your home to children or grandchildren, giving up to £500,000 tax-free.
  • Taper: the £175,000 residence band is reduced by £1 for every £2 your estate exceeds £2,000,000, disappearing entirely around £2.35m.
  • IHT rate: 40% on everything above your available allowances.
  • Pension in the estate (from 6 Apr 2027): the unused pot is added to your estate, the IHT is recalculated, and the share attributable to the pension is apportioned.
  • Spouse & charity exemption: anything passing to a spouse, civil partner or charity is exempt, so the calculator zeroes the IHT when you choose to leave everything to a spouse.
  • Income tax at 75+: if you die at 75 or over, your beneficiary also pays income tax at their marginal rate on what they withdraw from the inherited pension – on top of any IHT.
  • Excluded: death-in-service benefits and dependants' scheme (defined-benefit) pensions are not caught by the new rules.

Worked example

Suppose you have a £500,000 non-pension estate (including a home left to your children) and a £400,000 unused pension pot, and you die aged 76 leaving the pot to a higher-rate (40%) taxpaying child:

  • Allowances: £325,000 + £175,000 = £500,000.
  • Before 2027: estate of £500,000 − £500,000 allowances = £0 IHT.
  • From 2027: total estate £900,000 − £500,000 = £400,000 × 40% = £160,000 IHT.
  • IHT apportioned to the pension (£400,000 of £900,000): £71,111.
  • Income tax for the 40% beneficiary on the £328,889 left after IHT: £131,556.
  • Net pension reaching your heirs: £197,333 – a combined effective rate of 50.7% on the pot.

Frequently asked questions

When do pensions become subject to Inheritance Tax?

From 6 April 2027. Most unused defined-contribution pension funds and lump-sum death benefits will be included in the value of your estate for IHT, ending the long-standing exemption.

What pensions are excluded from the new rules?

Death-in-service benefits paid from registered pension schemes and dependants' defined-benefit (scheme) pensions are excluded. The change mainly affects defined-contribution pots, SIPPs and drawdown funds.

What is the “double tax” on pensions at age 75+?

If you die aged 75 or over, the inherited pension is hit twice: 40% Inheritance Tax on the value in your estate, and then income tax at the beneficiary's marginal rate (up to 45%) on the money they withdraw. Combined, the effective rate on the pot can exceed 60%.

Can I avoid pension IHT by leaving it to my spouse?

Anything you leave to a spouse or civil partner is exempt from Inheritance Tax, so there is no IHT on first death. However, the pot then forms part of their estate, so tax may apply on the second death – planning ahead matters.

Source: GOV.UK – Inheritance Tax on pensions and GOV.UK – Inheritance Tax thresholds and rates.

Related tools: Inheritance Tax Calculator, Pension Pot Calculator, Pension Drawdown Calculator, Income Tax Calculator, All UK Calculators.

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