Pension inheritance tax calculator

See an illustrative comparison of Inheritance Tax on your estate with your pension left out (today's rules) and brought in (the incoming rules), plus the income tax a beneficiary may pay on top.

Figures for the 2026/27 tax year. Last reviewed 28-09-2026.

What's changing, and why it matters

Today, most unused pension funds sit outside your estate for Inheritance Tax purposes entirely. Leave £300,000 in a pension and £300,000 in a bank account, and only the bank account counts towards the 40% IHT bill — the pension usually passes to whoever you've nominated free of IHT altogether.

That changes for deaths from the date shown in this calculator's assumptions panel, when unused pension funds and most death benefits are brought into the estate for IHT purposes, just like any other asset. For anyone who has been deliberately leaving their pension untouched as a tax-efficient way to pass on wealth — a common strategy for years — this removes a large part of that advantage.

This calculator compares the two positions: IHT calculated with the pension left out (matching today's rules), and IHT calculated with it included (matching the incoming rules), so you can see the scale of the difference for your own numbers.

A worked example

Take someone with a £250,000 pension, £300,000 in other assets like savings and investments, and a £350,000 home left to their children. They're single, so they get one nil-rate band (£325,000) and one residence nil-rate band (up to £175,000, since the home passes to direct descendants) — £500,000 of allowances in total.

With the pension excluded: their estate is £300,000 + £350,000 = £650,000. Taxable estate = 650,000 - 500,000 = £150,000, so IHT = £150,000 x 40% = £60,000.

With the pension included: their estate becomes £900,000. Taxable estate = 900,000 - 500,000 = £400,000, so IHT = £400,000 x 40% = £160,000 — a £100,000 increase, purely from the pension now counting.

If they died aged 75 or over and their child (a higher-rate taxpayer) draws the whole £250,000 pension, that child also pays income tax on it — £100,000 at 40%. Combined, £200,000 of the original £250,000 pension is lost to IHT and income tax together, leaving £50,000 net. That's the double hit this reform creates for older deaths: IHT on the way in, income tax on the way out.

The residence nil-rate band taper

The residence nil-rate band starts tapering away once the estate passes £2 million (£4 million for a couple's combined allowances, under this calculator's simplifying assumption), at a rate of £1 lost for every £2 over that line. It disappears completely once the estate is around £2.7 million above the threshold on its own.

Because pensions now count towards the estate for this test too, someone whose estate was previously safely under £2 million might find that adding their pension pushes them over it — shrinking or eliminating their residence nil-rate band on top of the direct 40% charge on the pension itself. Large estates with valuable homes are where this interaction bites hardest.

Age at death: 75 changes everything for the beneficiary

Separately from IHT, the beneficiary's own income tax position on a pension they inherit depends entirely on how old the pension holder was when they died. Under 75, the beneficiary can normally draw the pension completely free of income tax, however much they take. At 75 or over, every pound drawn out is added to the beneficiary's taxable income for that year, at their own marginal rate.

This calculator applies the beneficiary's selected tax rate as a flat rate to the whole pension, as an illustration. In reality, drawing a large inherited pot in one go could easily push a beneficiary into a higher tax band than their everyday income would suggest — the flat-rate figure here is a simplification, not a prediction of exactly what they'd pay.

Common mistakes and things this doesn't model

The biggest mistake is assuming a spouse or civil partner automatically gets double allowances no matter what. In reality, transferable nil-rate bands depend on how much the first-dying spouse actually used — someone who made large gifts or has an unusual estate arrangement might not get the full transfer this calculator assumes for simplicity.

The second is ignoring that IHT and the beneficiary's income tax are two separate bills, potentially payable by different people (the estate pays IHT; the beneficiary pays their own income tax as and when they draw the pension) — they don't necessarily come out of the same pocket at the same time, even though this calculator adds them together to show the combined scale of the impact.

This tool also doesn't model gifts made within 7 years of death, trusts, business or agricultural property relief, charitable giving reliefs, or multiple pensions with different nominated beneficiaries — all of which can materially change a real IHT bill. Treat every figure here as a rough illustration of the scale of change, not a substitute for proper estate planning advice.

Frequently asked questions

Do all pensions become subject to Inheritance Tax under the new rules?

Broadly, unused defined contribution pension funds and most lump sum death benefits are brought into the estate. Some benefits, like certain dependants' scheme pensions, are expected to be treated differently — check your own scheme's rules and the final legislation nearer the effective date, since the detail is still being finalised.

Does it matter how old I am when I die?

Yes, but for a different tax. Your age at death (under or over 75) determines whether your beneficiary pays income tax when they draw the pension you leave them — it doesn't affect whether Inheritance Tax applies to the pension in your estate, which depends on the rules in force at your date of death instead.

Can I avoid this by spending my pension down before I die?

This calculator doesn't tell you what to do with your own money — it only illustrates the tax position under different assumptions. Any decision about how much to draw from a pension during your lifetime should take into account your own income needs, other assets, and personal circumstances, ideally with regulated financial advice.

What if my pension is already in drawdown, not just sitting untouched?

The rules generally focus on unused/unspent pension funds and death benefits, whether uncrystallised or in drawdown — money you've already spent obviously isn't part of your estate. This calculator treats the pension value you enter as the amount that would pass to a beneficiary on death, regardless of whether it's crystallised.

How accurate is this calculator?

It's illustrative only. Real Inheritance Tax involves first-death allowance transfers, gifts, trusts, business and agricultural relief, and scheme-specific death benefit rules that this simplified model doesn't attempt to capture. Use it to understand the scale of the change, not as a precise forecast of your own estate's tax bill.