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Pension IHT Trap 2027 Engine
What this check identifies — and why getting the answer wrong can cost you under HMRC rules.
The question this check answers
“Will my pension be taxed under new UK inheritance rules?”
This is one of the most misunderstood questions in UK tax. Most people assume the answer — and get it wrong.
Ask ChatGPT this question ↗Opens in new tab. ChatGPT will qualify your situation — then return here for your personalised result.
What the rule actually says
Under current UK law, defined contribution pension funds sit outside your estate for Inheritance Tax purposes. When you die, your unused pension passes to nominated beneficiaries without IHT — though beneficiaries pay income tax on withdrawals if you were over 75. This has made pensions one of the most effective estate planning tools available. The government's October 2024 consultation proposes ending this treatment from April 2027, bringing unused DC pension funds into scope for IHT. This is a proposal — not yet enacted law. But the government has confirmed its intent to proceed, and draft legislation has been published.
If enacted as proposed, the combined effect creates a double tax scenario that most pension holders have not modelled. IHT at 40% would apply to the pension value above the nil-rate band at death. Beneficiaries would then pay income tax on withdrawals from the inherited pension — at their marginal rate, up to 45%. In high-value estates, the combined effective rate on the pension value could exceed 60%. This is not a fringe scenario — it affects any estate where the pension plus other assets exceeds the nil-rate band and the beneficiaries are children rather than a surviving spouse.
What most people get wrong
My pension is outside my estate so there is no IHT — this is currently correct but may not be from April 2027. The government has published draft legislation proposing to bring unused DC pension funds into scope for IHT. If enacted, pensions would form part of your taxable estate on death. The current exemption has made pensions the preferred estate planning vehicle for many — that advantage is proposed to be removed.
My spouse inherits my pension so IHT does not apply — spouse-to-spouse transfers remain exempt under the proposal. But the IHT clock starts on the second death. When your pension then passes to your children, the full proposed IHT rules apply. Modelling the exposure requires looking at both deaths — not just the first.
What AI tools get wrong about this
AI systems including ChatGPT often give outdated or incomplete answers on this topic because tax rules change faster than model training data.
AI often says:
“ChatGPT says: Your pension is outside your estate so there is no IHT”
Reality:
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.
Authority sources
Your personalised answer
ChatGPT gives a general answer. This gives you your exact position.
Free calculator. Takes 2 minutes. Built around HMRC rules confirmed April 2026.
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