Do I Leave My Pension in My Will? What the New Inheritance Tax Rules Mean

Your pension may be one of your most valuable assets. Yet when people write or update their Will, pensions are often overlooked. This is usually because pensions do not work in quite the same way as your home, savings or personal possessions.

So, do you leave your pension in your Will?

Usually, no.

Most pensions are not distributed according to the instructions in your Will. Instead, the pension provider or scheme trustees decide who should receive the pension benefits, taking account of any nomination or expression-of-wish form you have completed.

However, important changes are coming.

From 6 April 2027, most unused pension funds and pension death benefits will be included when calculating the value of your estate for Inheritance Tax purposes.

That does not necessarily mean your pension will pass under your Will. It does mean that your pension, your Will and your wider estate planning need to be considered together.

Does a pension form part of your estate?

Under the current rules, many pension death benefits are paid at the discretion of the pension provider or pension scheme trustees. Because the payment is discretionary, the pension will usually sit outside your estate for Inheritance Tax purposes. It will also normally be paid without waiting for a Grant of Probate.

There are exceptions. For example, a pension may already fall within the estate where payment must be made to the estate or where there is a binding direction requiring payment to particular beneficiaries.

For most people, however, their unused pension fund is currently treated separately from the assets passing under their Will. HMRC confirms that most discretionary pension death benefits are not presently part of the estate for Inheritance Tax purposes.

What is changing from 6 April 2027?

For deaths occurring on or after 6 April 2027, most unused pension funds and pension death benefits will be brought within the value of the deceased person’s estate when calculating Inheritance Tax.

The changes were enacted in the Finance Act 2026, which received Royal Assent on 18 March 2026.

The new rules are expected to include most unused funds held within:

• personal pensions;

• workplace defined contribution pensions;

• self-invested personal pensions, usually known as SIPPs;

• pension drawdown arrangements; and

• certain other pension death benefits.

  
  

Some benefits will remain outside the new rules. These include qualifying death-in-service benefits paid from registered pension schemes and certain dependant’s pensions and continuing annuities.

The rules apply according to the date of death, not the date on which the pension is eventually paid.

If someone dies before 6 April 2027, the current rules will apply even if the pension provider does not pay the benefits until after that date.

Will my pension pass under my Will after April 2027?

Not necessarily.

This is one of the most important parts of the new rules.

A pension may be included in the value of your estate for Inheritance Tax purposes, while still being paid by the pension provider or trustees under the pension scheme rules.

In other words:

Being counted as part of your estate for tax does not automatically mean the pension is controlled by your Will.

Your Will determines what happens to assets that form part of your estate and are governed by the Will.

Your pension nomination tells the pension provider or trustees who you would like them to consider when deciding who receives your pension benefits.

They are connected, but they are not the same document and they do not perform the same job.

Who inherits my pension if it is not left in my Will?

You will usually be asked to complete a:

• nomination form;

• beneficiary nomination; or

• expression-of-wish form.

The name varies between pension providers.

On this form, you tell the pension provider who you would like to receive the pension benefits when you die. You may be able to nominate one person, several people, a trust, a charity or sometimes your estate.

The pension provider will usually take your wishes into account, but the nomination may not always be legally binding.

Government guidance explains that the person who died will usually have nominated a beneficiary, although the pension provider may sometimes pay someone else. This could happen where the nominated person has died, cannot be located or where other circumstances need to be considered.

When did you last check your pension nomination?

People frequently complete a pension nomination when they first join a scheme and then forget all about it.

Years later, it may still name:

• a former husband, wife or partner;

• a parent who has since died;

• only one child, despite the family having grown;

• someone from whom they are now estranged; or

• nobody at all.

  
  

Marriage, divorce, separation, remarriage, bereavement and the birth of children or grandchildren can all affect whether an old nomination still reflects your wishes.

Your Will might be completely up to date while your pension nomination is quietly living in 2008.

Not sure whether your Will and pension nominations still work together? Toucan Law can review the estate-planning documents within our expertise, identify potential gaps and help you understand what may need updating.

Are SIPPs affected by the new Inheritance Tax rules?

Yes, in most cases.

A SIPP, or self-invested personal pension, is a type of personal pension that usually gives the holder greater control over how the pension fund is invested.

SIPPs have often been used as part of retirement and inheritance planning because unused funds can currently pass outside the estate in many circumstances. From 6 April 2027, most unused SIPP funds will be included in the deceased member’s estate when calculating Inheritance Tax.

The fact that a SIPP provider retains discretion over who receives the fund will not, by itself, prevent the pension from being included in the Inheritance Tax calculation under the new rules.

This means people with substantial SIPP funds may need to reconsider the balance between:

• using pension funds during retirement;

• retaining pension wealth;

• making lifetime gifts;

• providing for a spouse or civil partner;

• providing for children or other beneficiaries; and

• retaining enough income and capital for their own future needs.

Any decision to withdraw, transfer or restructure pension funds should be made with appropriately regulated financial and tax advice. A pension should not be emptied simply because the tax rules are changing.

Will every inherited pension face Inheritance Tax?

No.

Including a pension in the value of an estate does not automatically mean Inheritance Tax will be payable.

Inheritance Tax will depend on factors including:

• the total value of the estate;

• the value of the unused pension benefits;

• available nil-rate bands;

• whether assets pass to a spouse or civil partner;

• whether assets pass to charity;

• previous lifetime gifts;

• the terms of the Will; and

• other available exemptions or reliefs.

Most estates are still expected to have no Inheritance Tax liability after the changes.

However, HMRC estimates that around 10,500 estates in 2027 to 2028 could become liable for Inheritance Tax when they would not previously have been, while approximately 38,500 estates could pay more tax. These are government estimates and may change according to people’s future behaviour and planning decisions.

What happens if my pension passes to my spouse or civil partner?

Pension benefits passing to a surviving spouse or civil partner will generally continue to benefit from the spouse or civil partner exemption from Inheritance Tax. This may mean there is no immediate Inheritance Tax charge on the pension benefits passing to them.

However, that does not mean no planning is needed.

The pension may later form part of the surviving spouse or civil partner’s own estate. Their estate could then be larger when they die. There may also be wider family considerations.

For example:

• Is this a second marriage?

• Are there children from previous relationships?

• Does the surviving spouse have their own substantial estate?

• Could they change their Will later?

• Is the pension nomination consistent with the couple’s overall intentions?

• Should some benefits pass to children or other beneficiaries instead?

The simplest nomination is not always the one that best reflects the family’s long-term wishes.

Could an inherited pension face both Inheritance Tax and Income Tax?

Potentially, yes.

Inheritance Tax and Income Tax are separate taxes.

From April 2027, the unused pension may be included when calculating Inheritance Tax on the estate.

The person receiving the pension may also have to pay Income Tax when taking benefits from the inherited pension, depending on matters including:

• the age of the pension holder when they died;

• the type of pension;

• when the benefits are designated or paid;

• whether benefits are taken as income or a lump sum; and

• the beneficiary’s own tax position.

Government guidance confirms that tax may be payable on benefits received from an inherited private pension.

This does not mean every pension will be taxed twice. Spouse exemptions, estate allowances and pension tax rules may affect the outcome.

It does mean that pension inheritance is becoming more complicated and should no longer be treated as an entirely separate corner of estate planning.

Who will deal with the Inheritance Tax on pensions?

From 6 April 2027, the deceased person’s personal representatives will generally be responsible for reporting the pension and paying any Inheritance Tax due.

The personal representatives are usually the executors named in the Will or the administrators dealing with an intestate estate.

Pension scheme administrators and personal representatives will need to exchange information so that:

1. the pension can be valued;

2. the total estate can be calculated;

3. available allowances and exemptions can be applied;

4. any tax attributable to the pension can be identified; and

5. the pension benefits can ultimately be released.

In some circumstances, personal representatives will be able to direct the pension provider to withhold part of the taxable pension benefits and pay the relevant Inheritance Tax to HMRC.

This is likely to make estate administration more involved, particularly where the deceased held several pensions with different providers.

It will also make it increasingly important for executors to know what pension arrangements existed.

Should I nominate my estate to receive my pension?

Not without taking advice.

It may be tempting to nominate your estate because your Will then appears to provide one clear set of instructions.

However, directing pension benefits to your estate can have disadvantages. Depending on the pension scheme and the circumstances, it could affect:

• how and when the money is paid;

• the tax treatment;

• the need for Probate;

• protection from estate creditors;

• the options available to beneficiaries; and

• how quickly the beneficiaries can access the funds.

For some people, nominating the estate may be appropriate. For others, it could produce a less favourable result. The right answer depends on the pension scheme, the Will, the intended beneficiaries and the wider estate.

Do I need to change my Will because of the new pension rules?

Not everyone will need a new Will simply because the rules are changing.

However, it is sensible to review your estate planning if:

• you have a substantial pension or SIPP;

• your combined estate and pension may exceed the available Inheritance Tax allowances;

• you have not reviewed your Will recently;

• your pension nomination is out of date;

• you are married but have children from a previous relationship;

• you are unmarried and want to provide for your partner;

• one of your beneficiaries is vulnerable;

• you have nominated your estate to receive your pension;

• you have several pensions with different providers; or

• you are unsure whether your Will and pension nominations achieve the same overall plan.

A review does not begin with changing documents.

It begins with understanding what you own, who you want to benefit and how the different parts of your estate will work together.

Five things to do before April 2027

1. Find all your pensions

Make a list of every personal pension, workplace pension and SIPP you hold.

Include the provider’s name, your policy or membership number and current contact details.

2. Check your nominations

Ask each pension provider for a copy of your current nomination or expression-of-wish form.

Do not assume that completing one many years ago means it remains appropriate now.

3. Review your Will

Check whether your Will still reflects your family, assets and wishes.

Pay particular attention to substitute beneficiaries, trusts and what would happen if someone died before you.

4. Estimate the total estate

Consider the approximate value of your home, savings, investments, personal possessions and unused pension funds.

This will help establish whether the 2027 changes could move your estate closer to, or beyond, the Inheritance Tax thresholds.

5. Take joined-up advice

Estate planning, pensions, tax and financial advice overlap, but different advisers perform different roles.

A qualified estate-planning practitioner can review your Will and succession arrangements. A regulated financial adviser can advise on pension investments, withdrawals and regulated pension products. Specialist tax advice may also be necessary in larger or more complicated estates.

The best planning usually happens when those pieces speak to one another rather than squawking from separate branches.

Frequently asked questions

Does my pension automatically go to my next of kin?

No. “Next of kin” does not automatically create a legal entitlement to receive your pension.

The pension provider will consider the scheme rules, your nomination and your personal circumstances.

Can I name my children as pension beneficiaries?

Many pension schemes allow children or other individuals to be nominated.

Whether this is the best choice will depend on the scheme, the children’s ages, their circumstances and the tax implications.

Does divorce cancel a pension nomination?

Not necessarily.

You should review your pension nominations following divorce or separation rather than assuming the provider will disregard an old form.

Can I divide my pension between several people?

Many providers allow you to nominate several beneficiaries and assign percentages to each.

You should check the rules and forms used by your particular pension provider.

Is a pension nomination legally binding?

Often it is an expression of your wishes rather than a binding instruction.

The provider or trustees may retain discretion over who receives the benefits.

Will the new rules apply to the State Pension?

The April 2027 changes concern unused pension funds and pension death benefits within the scope of the legislation. The State Pension operates differently and does not create an unused pension pot that can simply be passed under a Will.

Your pension and your Will should tell the same story

Your pension nomination and your Will may be separate documents, but they form part of the same bigger picture.

Both should reflect:

• who matters to you;

• who you want to protect;

• how you want your assets to be shared; and

• the family circumstances that may exist when you die.

The changes from April 2027 make it more important to consider that picture as a whole.

A carefully drafted Will cannot correct an outdated pension nomination. Equally, a pension nomination cannot replace the detailed planning available through a properly prepared Will.

Book an estate-planning review

At Toucan Law, we help individuals and families understand how their Wills, pension nominations and wider estate-planning arrangements fit together.

We can help you:

• review your existing Will;

• identify inconsistencies between your Will and pension nominations;

• consider planning for a spouse, partner, children or blended family;

• explore appropriate Will trusts;

• understand the estate-administration implications of the new rules; and

• work alongside your financial or tax adviser where regulated or specialist advice is required.

  
  

Do not wait until April 2027 to discover that your pension nomination and your Will are pointing in different directions.

BOOK NOW

Call 01934 271027, email hello@toucanlaw.co.uk, or arrange an appointment with Toucan Law.

Appointments are available in our Weston-super-Mare office, by telephone, online or, where suitable, in your own home.

This article provides general information based on the position at the date of publication. It does not constitute individual legal, financial, pension or tax advice. Pension rules, tax treatment and individual circumstances vary. Regulated financial advice should be obtained before making decisions about pension contributions, investments, withdrawals or transfers.