Budget 2026: pensions and Inheritance Tax for executors

What Budget 2026 changed for executors

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Valuing the estate? Record each asset at its date-of-death value

The asset inventory records each asset's value at death, beside an Inheritance Tax sanity check, a page on which Inheritance Tax route applies, and letters asking banks and investment providers for date-of-death values.

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Worked example: a pension in the estate from 6 April 2027

A single person who never married dies leaving a home worth £300,000 to their children and £100,000 of savings: an estate of £400,000 before any pension. Their allowances are the £325,000 nil-rate band plus the £175,000 residence nil-rate band, because the home goes to their children: £500,000 in all.²³ Tax is 40% of the value above that.²

Worked out with Settle's estate calculator. It assumes no gifts in the last seven years, no transferred allowance from a late spouse, the whole pension counted, and an estate below £2 million (above that the residence nil-rate band starts to taper).² Anything left to a spouse or civil partner is normally free of Inheritance Tax,³ so the picture is different for a married person. HMRC's detailed rules decide exactly which pension benefits count and how the tax is shared between the scheme and the rest of the estate.

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The asset inventory records each asset's value at death, beside an Inheritance Tax sanity check, a page on which Inheritance Tax route applies, and letters asking banks and investment providers for date-of-death values.

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What executors should do now

• Death before 6 April 2027: unused pensions are dealt with under the current rules. Ask each scheme for its death benefit forms and whether any payment is due.
• Death on or after 6 April 2027: list every pension the person had, ask each scheme for the value of unused funds and death benefits, and include them when you value the estate for Inheritance Tax.¹³ See pension death benefits and Inheritance Tax for executors.
• Paying the tax: the power to ask the scheme to pay is announced but not yet law. Check GOV.UK for the final rules before relying on it.¹
• Late death benefit payments: the removal of the two-year rule applies to payments from 28 October 2026 once Finance Bill 2026-27 is passed. Until then, ask the scheme how it is treating late payments.¹

Frequently asked questions

Do pensions count towards Inheritance Tax from April 2027?

Yes, for deaths on or after 6 April 2027. Most unused pension funds and pension death benefits will be brought within the value of a person's estate for Inheritance Tax. This was legislated for in Finance Act 2026.¹

Who pays the Inheritance Tax on a pension?

Budget 2026 announced legislation in Finance Bill 2026-27 to allow a prospective personal representative to direct pension scheme administrators to pay the Inheritance Tax due to HMRC when certain conditions are met, from 6 April 2027. This is announced but not yet law.¹

What is the pension two-year rule and has it gone?

Tax-free pension and lump sum death benefits can become taxable if paid more than two years after the scheme knew, or could reasonably have known, of the death. Budget 2026 announced legislation to remove that rule for payments made on or after 28 October 2026. It needs Finance Bill 2026-27 to become law.¹