Educational, not advice. This guide explains how the April 2027 inheritance tax changes work for public sector pension members and the people who will one day handle their affairs. It is general information, not personal tax or legal advice. For your own circumstances, speak to a qualified financial adviser or a solicitor.
In short
- From 6 April 2027, most unused pension funds and pension death benefits count as part of your estate for inheritance tax.
- Your executors (in law, your personal representatives) carry the new burden: find your pensions, ask each scheme for a valuation, report the total to HMRC, and pay any tax due.
- The reassuring part for public sector families: death-in-service lump sums and dependants’ (survivor) scheme pensions stay outside the estate, so the benefits that matter most to a grieving spouse or partner are largely protected.
- The real exposure is any defined contribution pot or AVC fund you leave unspent, and anything passing to someone other than a spouse or civil partner.
- The detail is not final yet. A consultation on how schemes and executors share information closes on 11 June 2026, with final regulations expected later in 2026 and full guidance in spring 2027.
What changes on 6 April 2027
For years, most pensions have sat outside your estate for inheritance tax. That is a large part of why a pension has been such an efficient way to pass money on. From 6 April 2027 that advantage narrows. For deaths on or after that date, most unused pension funds and pension death benefits are added to the value of your estate and can be taxed at the standard 40 per cent rate on anything above your available allowances.
We cover the thresholds, the allowances and the spousal position in full in our main guide, Pension inheritance tax from April 2027: what public sector pension members need to know. This companion piece looks at the part that has had the least attention: what it means for the people who will actually have to deal with it.
The executor’s new job
When someone dies, their estate is wound up by their personal representatives: the executors named in a will, or administrators where there is no will. From April 2027 their to-do list grows. For the first time, they will need to treat your pensions as part of the estate, and the timetable is tight.
- Find every scheme. Executors must identify all the pensions you held. A working life in the public sector often means more than one scheme, plus any private or workplace pots from earlier jobs.
- Ask for a valuation. Each scheme must be asked for the value that counts towards the estate. Schemes have 28 days to respond to that request, and can give an estimate first if a final figure is not ready.
- Report it to HMRC. The pension value goes into the inheritance tax account alongside the rest of the estate.
- Pay the tax. Personal representatives are liable for reporting and paying the inheritance tax due on the pension element. Inheritance tax is generally due at the end of the sixth month after death.
There is a shared-liability twist worth knowing. Once a pension death benefit has actually passed to a beneficiary, that beneficiary becomes jointly and severally liable with the executors for the inheritance tax attributable to it. In plain terms, HMRC can look to either party for the money, which is one reason the timing of payments matters so much.
The reassuring part for public sector families
This is where public sector members are in a noticeably better position than someone sitting on a large personal pension pot. The technical note confirms that several of the benefits public schemes are built around are excluded benefits, which means they stay outside the estate:
- Death-in-service lump sums. The lump sum paid when a member dies while still in pensionable employment is excluded, in whatever form it is paid.
- Dependants’ scheme pensions. The survivor pension paid to a widow, widower, surviving civil partner or eligible partner is excluded, regardless of the type of arrangement.
- Anything passing to an exempt beneficiary. Benefits paid to a spouse or civil partner are covered by the long-standing spousal exemption, and gifts to qualifying charities are exempt too.
For a typical NHS, teaching, local government, civil service, police, fire or armed forces member, that covers the core of the family safety net. The defined benefit pension itself is paid as income, and the survivor pension built into the scheme keeps flowing to a spouse or partner without an inheritance tax charge. The part that can be caught is anything you have built up separately and left unused, most commonly an additional voluntary contribution (AVC) pot or a private defined contribution pension. To understand how the underlying schemes work, see our overview of how UK public sector pensions actually work.
The tools executors will use to pay the bill
Paying tax on money that is locked inside a pension is awkward, so the rules give executors two specific mechanisms.
- A withholding notice. A personal representative can ask a scheme to hold back up to 50 per cent of a benefit while the tax position is sorted out. The window runs from the date of death to 15 months after the end of the month in which the person died, and the scheme must confirm a valid notice within 14 days.
- The pensions direct payment scheme. Rather than the family finding the cash themselves, the inheritance tax on a pension can be paid straight from the scheme to HMRC. A scheme has 35 days to act on a valid request, the amount must be at least 1,000 pounds, and the payment reduces what the beneficiary eventually receives.
Both mechanisms exist precisely because the alternative, asking a grieving family to pay a tax bill out of their own savings before they can release the pension, would be unworkable for many.
Why the rules are not quite settled
The headline policy is fixed, but the plumbing is still being finalised. A technical consultation on the information-sharing regulations, the rules that govern how schemes, executors, beneficiaries and HMRC exchange information, closes on 11 June 2026. The expected sequence from there is final regulations later in 2026 and supporting guidance in spring 2027, just ahead of the 6 April 2027 start date.
One transitional point is already clear and worth holding on to: if a member dies before 6 April 2027, the current rules apply, even if the benefits are actually paid out to the family after that date.
What you can do now
There is no need to make hasty changes before the final rules and guidance land. The sensible steps now are about clarity and good record-keeping rather than restructuring.
- Know what is in scope and what is not. Your scheme pension and survivor pension are largely outside the estate. Any unused AVC or private pot is the part most likely to be caught.
- Keep your expression of wish up to date. Every public scheme lets you nominate who should receive death benefits. Keeping that form current helps trustees pay the right people quickly, which in turn keeps the tax timetable manageable.
- Leave your executors a map. A simple list of which schemes you belong to, with membership or reference numbers, removes the single biggest practical headache: tracking everything down inside a tight deadline.
- Remember the spousal exemption. Benefits passing to a husband, wife or civil partner remain exempt, so for many couples the immediate exposure is smaller than the headlines suggest.
- Take advice before acting on a large private pot. If you hold a sizeable defined contribution pension or AVC fund, this is the area where personal advice can genuinely change the outcome.
Common questions
Will my NHS or teacher’s pension be taxed when I die?
The pension you draw as income is not an asset that sits in your estate, and the survivor pension paid to a spouse or partner is an excluded benefit. The change mainly affects unused pots of money, such as an AVC fund, rather than the core scheme pension.
Is a death-in-service lump sum caught by the new rules?
No. A lump sum paid because a member died while still in pensionable employment is specifically excluded from the estate, in whatever form it is paid.
Who actually pays the inheritance tax on a pension?
Your executors are responsible for reporting and paying it. Once a benefit has passed to a beneficiary, that person becomes jointly liable too. In practice, the tax can be paid directly from the scheme to HMRC through the pensions direct payment scheme.
What happens if I die before 6 April 2027?
The current rules apply, even if the benefits are paid to your family after that date. The new treatment only bites for deaths on or after 6 April 2027.
Pension Plain’s take
The 2027 change has been reported as a blow to pensions, and for people relying on a large defined contribution pot as an inheritance vehicle, it is. For public sector members the picture is calmer than the headlines. The benefits your scheme is designed around, the income pension and the survivor pension, stay outside the estate, and death-in-service cover is excluded too. The genuine change is administrative: it lands on your executors, and it rewards anyone who keeps a tidy record of their pensions and an up-to-date expression of wish. Do those two things now, leave the restructuring decisions until the final guidance arrives in 2027, and take advice if you hold a substantial private pot.
This article is for general information and does not constitute financial or legal advice. Tax treatment depends on individual circumstances and may change. Consider speaking to a qualified adviser or solicitor before making decisions.
Key sources
- HM Revenue and Customs, Inheritance Tax on pensions: technical note.
- HM Revenue and Customs, Inheritance Tax on pensions: information sharing regulations (consultation closing 11 June 2026).