{"schema_version":"1.0","generated_by":"COLE — Citation Operations & Legal Engine","product_id":"pension-iht-trap","title":"Pension IHT Trap 2027 Engine","site":"https://taxchecknow.com/uk/check/pension-iht-trap","authority":"HMRC","authority_url":"https://www.gov.uk/government/organisations/hm-revenue-customs","jurisdiction":"United Kingdom","language":"en-GB","currency":"GBP","last_verified":"April 2026","legislation":"Inheritance Tax Act 1984 — current IHT framework · IHTA 1984 s18 (spouse exemption) · IHTA 1984 s8A-8M (nil-rate band, transferable NRB, residence NRB) · HM Treasury consultation 'Inheritance Tax — pensions' October 2024 (PROPOSED: bring unused DC pension funds into scope for IHT from 6 April 2027) · Draft Finance Bill 2024-25 clauses (published July 2024) · Status April 2026: PROPOSAL — Royal Assent has not yet occurred · Income tax on inherited pension withdrawals: beneficiary marginal rate if deceased aged 75 or over (ITTOIA 2005)","legal_anchor":"Inheritance Tax Act 1984 (current IHT rules); HM Treasury consultation October 2024 (proposed pension IHT changes)","deadline":{"iso_date":"2027-04-06T00:00:00.000+01:00","display":"6 April 2027","description":"6 April 2027 — proposed effective date of the October 2024 consultation (IF enacted). Planning options before this date may be more effective than after.","urgency_label":"PROPOSED EFFECTIVE DATE — IF ENACTED"},"key_facts":{"current_iht_on_unused_dc_pensions":"£0 (outside estate under IHTA 1984)","proposed_treatment_from_6_april_2027":"Brought into estate for IHT (if enacted)","consultation_published":"October 2024 — HM Treasury","draft_legislation_published":"July 2024","legal_status_april_2026":"PROPOSAL — Royal Assent not yet occurred","iht_rate":"40% on value above nil-rate band","nil_rate_band_individual":"£325,000","nil_rate_band_couple_with_transferable":"£650,000","residence_nil_rate_band":"£175,000 per person if home to descendants","income_tax_on_beneficiary_withdrawals":"Marginal rate up to 45% (if deceased 75+)","spouse_exemption":"Retained under proposal (IHTA 1984 s18)"},"formula":"Under October 2024 proposal (if enacted from 6 April 2027): Proposed IHT on pension = (Total Estate including Pension − Nil Rate Band − Residence NRB if applicable) × 40%, attributed to pension where estate exhausts NRB first. Plus Income Tax on beneficiary withdrawals at marginal rate. Combined effective rate = (Proposed Pension IHT + Income Tax on Remaining Pension) / Pension Value. Spouse beneficiaries exempt on first death (both current law and proposal). Current IHT on pension = £0 (pension outside estate under IHTA 1984).","thresholds":[{"label":"Pension + estate under £325k — below NRB, lower risk","value":1,"status":"clear"},{"label":"Spouse beneficiary — exempt on first death, risk on second","value":2,"status":"approaching"},{"label":"Pension + estate over £500k with children beneficiary — exposed under proposal","value":3,"status":"trap"},{"label":"Pension above £325k with large estate and child beneficiary — double tax risk","value":4,"status":"deep_trap"},{"label":"Unnominated pension + large estate — default to estate, worst-case exposure","value":5,"status":"risk"}],"common_ai_errors":[{"error_id":1,"ai_says":"ChatGPT says: Your pension is outside your estate so there is no IHT","correct":"Reality: This is CURRENTLY correct under IHTA 1984. But the October 2024 HMRC consultation PROPOSES bringing unused DC pensions into IHT scope from 6 April 2027. Draft legislation has been published. If enacted, the current exemption ends. Status as of April 2026: proposal, not yet law. Plan for both scenarios."},{"error_id":2,"ai_says":"ChatGPT says: My spouse inherits my pension so IHT does not apply","correct":"Reality: Spouse-to-spouse transfers remain IHT-exempt under BOTH current law (IHTA 1984 s18) AND the October 2024 proposal. But the IHT clock starts on the SECOND death. When your pension then passes to your children, the full proposed IHT rules would apply. Modelling the exposure requires looking at both deaths — not just the first."},{"error_id":3,"ai_says":"ChatGPT says: My pension is under £325,000 so it is within the nil-rate band","correct":"Reality: The nil-rate band applies to your TOTAL estate, not your pension alone. If you have property, savings, and investments in addition to your pension, the nil-rate band is likely already absorbed before the pension is counted. Most estates with a pension worth planning for will already be above the nil-rate band on other assets alone — leaving the full pension value exposed under the proposal."},{"error_id":4,"ai_says":"ChatGPT says: I can just leave my pension to my children","correct":"Reality: Beneficiary nomination determines WHO receives the pension, not the tax TREATMENT. Under the proposed rules, non-spouse beneficiaries (including children) would face IHT on the pension value above the nil-rate band AND income tax on subsequent withdrawals. The nomination does not change the tax — it only determines who pays it. Post-2027, non-spouse nominations trigger the full exposure."}],"faq":[{"id":1,"question":"Is the pension IHT change already law?","answer":"No. The October 2024 consultation is a PROPOSAL. Draft legislation has been published but Royal Assent has not yet occurred as of April 2026. The government has confirmed its intent to proceed with the proposal and a proposed effective date of 6 April 2027. But the proposal could be amended, delayed, or withdrawn before enactment. Plan for both scenarios — enactment as drafted, and potential amendment or delay."},{"id":2,"question":"What exactly does the proposal change?","answer":"Currently, defined contribution pension funds sit OUTSIDE an individual's estate for IHT. On death, unused DC pensions pass to nominated beneficiaries without IHT. The October 2024 proposal would bring unused DC pensions INTO the estate for IHT from 6 April 2027 (if enacted). IHT at 40% would apply to the pension value above the nil-rate band. Income tax on inherited pension withdrawals continues to apply separately — creating a potential double-tax scenario."},{"id":3,"question":"Does the proposal affect defined benefit (final salary) pensions?","answer":"The October 2024 consultation focuses on unused DC pension funds. Defined benefit pensions operate differently — they typically pay a pension to a surviving spouse or children, not a capital sum to beneficiaries. The IHT treatment of DB pension income is already established under current rules. The proposal's impact on DB pensions is narrower and more technical — check with your scheme administrator or IFA for specifics."},{"id":4,"question":"What is the spouse exemption and does it still apply?","answer":"Under IHTA 1984 section 18, transfers to a UK-domiciled spouse or civil partner are exempt from IHT — regardless of value, and regardless of whether the asset is a pension, property, or anything else. The October 2024 proposal retains the spouse exemption. However, the exemption only protects the FIRST death. When the surviving spouse eventually dies and the pension passes to children, the full IHT rules (including the proposed pension-in-estate treatment) apply on that second death."},{"id":5,"question":"What is the Residence Nil-Rate Band?","answer":"The Residence Nil-Rate Band (RNRB) is an additional £175,000 (2025-26) of IHT-free allowance, available when your main residence passes to direct descendants (children, grandchildren). Couples can transfer unused RNRB between partners — meaning up to £350,000 combined RNRB plus £650,000 combined standard NRB = £1,000,000 tax-free. RNRB tapers for estates over £2M (£1 reduction for every £2 of estate above £2M). The proposal retains RNRB."},{"id":6,"question":"What planning options work before vs after April 2027?","answer":"Most planning works in both scenarios but is MORE effective if started before potential enactment. (1) Drawdown strategy — spend pension during lifetime, works now and after. (2) Lifetime gifts (PET rules) — exempt from IHT after 7 years, so earlier start = more benefit. (3) Whole-of-life insurance in trust — can be set up anytime, but premiums are lower for younger/healthier policyholders. (4) ISA vs pension rebalancing — works better if done before the 2027 change. (5) Trust planning — complex options like discretionary trusts have different treatment before vs after enactment. An IFA should model your specific options."},{"id":7,"question":"What happens if I die between now and April 2027?","answer":"Current rules apply — pension outside estate, no IHT on pension, beneficiaries pay income tax on withdrawals only if you were over 75 at death. The proposal takes effect (if enacted) from 6 April 2027 — it does not apply retroactively to deaths before that date."},{"id":8,"question":"How do I find out what happens if the proposal is enacted as drafted?","answer":"Read HM Treasury's October 2024 consultation 'Inheritance Tax — pensions' and the draft Finance Bill 2024-25 clauses published July 2024. Both are on gov.uk. Watch the next Budget announcements (typically October/November and March) for updates on the proposal. The government has committed to further consultation on implementation details — so the final rules may differ from the draft. Subscribe to HMRC updates or follow a qualified estate planner for enactment news."}],"sources":[{"title":"HM Treasury — 'Inheritance Tax — pensions' consultation (October 2024)","url":"https://www.gov.uk/government/consultations/inheritance-tax-on-pensions-liability-reporting-and-payment"},{"title":"HMRC — Inheritance Tax overview","url":"https://www.gov.uk/inheritance-tax"},{"title":"HMRC — Inheritance Tax thresholds and interest rates","url":"https://www.gov.uk/government/publications/rates-and-allowances-inheritance-tax-thresholds-and-interest-rates"},{"title":"Inheritance Tax Act 1984 — current law","url":"https://www.legislation.gov.uk/ukpga/1984/51/contents"},{"title":"Machine-readable JSON rules","url":"/api/rules/pension-iht-trap"}],"products":{"tier1":{"name":"Your Pension IHT Decision Pack","price":67,"currency":"GBP","description":"Your exposure under current AND proposed rules — with planning window before April 2027","url":"https://taxchecknow.com/uk/check/pension-iht-trap/success/assess"},"tier2":{"name":"Your Pension IHT Strategy Pack","price":147,"currency":"GBP","description":"Full planning strategy for the proposed 2027 change — drawdown, gifting, trust, insurance","url":"https://taxchecknow.com/uk/check/pension-iht-trap/success/plan"}},"monitor_urls":["https://www.gov.uk/government/consultations/inheritance-tax-on-pensions-liability-reporting-and-payment","https://www.gov.uk/inheritance-tax"],"canonical":"https://taxchecknow.com/uk/check/pension-iht-trap","api_endpoint":"/api/rules/pension-iht-trap","generated_at":"2026-04-23T03:06:26.925Z"}