Does the pension really change the tax on the rest of the estate?

Yes, through the residence nil rate band. The band tapers on the size of the estate, and from 2027-04-06 the pension counts towards that size. An estate of £2,000,000 with a £400,000 pension is a £2,400,000 estate for the taper, which is past £2,350,000 and loses the whole band. The tax rises by more than 40% of the pension.

Is the combined rate really 67%?

At worst, for an additional rate beneficiary where the member died at 75 or over and no nil rate band is left for the pension. It is 52% for a basic rate beneficiary on the same assumptions. Where the residence band taper is also biting, the marginal inheritance tax rate on the pension is 60% rather than 40%, and with the personal allowance withdrawal band on top the worst case reaches 84%. The calculator uses your own numbers and will usually show less, because it lets the nil rate band shelter a proportionate slice of the pension rather than assuming it shelters none of it.

Why is income tax not simply added to the inheritance tax?

Because s.637T ITEPA 2003 gives the beneficiary a deduction for the inheritance tax paid on their share, so the income tax applies to the pension net of it. Adding the two rates together would give 85% for an additional rate beneficiary. The correct answer is 67%.

My spouse inherits the pension. Is there nothing to pay?

No inheritance tax, because spouse or civil partner and charity are exempt. Income tax is a separate question with a separate answer: the exemption is inheritance tax only and does not cover income tax on withdrawal. A spouse inheriting from a member who died at 75 or over pays income tax on withdrawal in the ordinary way.

Does it matter that the beneficiary lives in Scotland?

For the income tax half, yes. Scottish rates run higher at the top, so the combined figure is higher for a Scottish beneficiary on the same pension. Inheritance tax is UK wide and does not change. This tool asks for the rate directly rather than deriving it, partly because the Scottish figures it holds are band rates with no thresholds attached.

Can I still leave 10% to charity and get the 36% rate?

It depends on whether the legacy is written as a percentage or a fixed sum, and on how large the pension is. The test is applied to the general component, which is where pension property lands, and bringing the pension in raises the amount needed to clear 10%. A fixed legacy that qualified before April 2027 may not afterwards.

UnitMojo ← Retirement

Home·Conversions·Calculators·Widgets·Blog·About

Money · UK inheritance tax

Pension inheritance tax calculator

Applies to: United Kingdom

From 2027-04-06, unused pension funds come into the estate for inheritance tax. Every existing UK inheritance tax calculator leaves pensions out, correctly, because today they are outside the estate. This shows both worlds side by side, including the two interactions that make the real rate far higher than 40%.

The death

The date decides whether the pension is in the estate at all. The age decides whether the beneficiary pays income tax on it.

Date of death

The change applies to deaths on or after 2027-04-06. Both sides are shown whatever you enter.

Age at death

Under 75 and inherited benefits are broadly free of income tax, subject to the two year rule below. At 75 or over, all death benefits are taxed at the beneficiary’s marginal income tax rate on withdrawal.

The estate, excluding pensions

Everything except the pension: property, savings, investments, possessions, net of debts.

Estate value excluding pensions

Charitable legacies

10% or more of the baseline amount brings the rate down from 40% to 36%. Read the charity trap below before relying on an existing will.

A residential property that was at some point the deceased’s residence passes to direct descendants

Required for the residence nil rate band. Claimed on IHT435; a deceased spouse’s unused band transfers on IHT436.

Transferred nil rate band (%)

A deceased spouse’s unused percentage. 100 gives the full £650,000.

Transferred residence band (%)

100 gives the full £350,000 before any taper.

The pension

The type decides whether the charge reaches it. Some types are genuinely unsettled and this tool will not choose for you.

Pension value

Pension type

Who inherits the pension

Spouse or civil partner and charity are exempt. That exemption is inheritance tax only and does not cover income tax on withdrawal.

The beneficiary’s income tax

Entered directly rather than worked out from income. Income tax residence changes the answer, and the Scottish figures held here are three band rates with no thresholds, so a Scottish rate cannot be derived from an income.

Beneficiary’s marginal income tax rate

The pension income falls between £100,000 and £125,140, where the personal allowance is being withdrawn

In that band, GBP 1 of personal allowance lost for every GBP 2 of adjusted net income above the threshold, so the effective rate on the slice is 60% rather than 40%. Tick it and the tool uses 60% instead of the rate above. It is offered rather than derived, because deriving it needs the beneficiary’s other income.

Reference rates, 2026-27	Rate
Rest of UK personal allowance (up to £12,570)	0%
Rest of UK basic (£12,571 to £50,270)	20%
Rest of UK higher (£50,271 to £125,140)	40%
Rest of UK additional (over £125,140)	45%
Scottish higher	42%
Scottish advanced	45%
Scottish top	48%

The rest of UK table is complete for non-savings, non-dividend income, which is what inherited pension income is, and is frozen through 2027-28, so it does not change next April. The Scottish rates here are band rates with no thresholds attached. A Scottish rate cannot be worked out from an income, so it has to be chosen, and nothing here quietly substitutes a rest of UK rate if you pick one. Inheritance tax itself is UK wide and is not affected by Scottish rates.

Two other rate sets exist and neither applies here. House of Commons Library briefing CBP-10618 records that Finance Act 2026 created separate rates for savings income, and separate rates for property income from 2027-04-06. An inherited pension is non-savings, non-dividend income and is taxed at the rates above, not at either of those.

Why does a pension change the inheritance tax on everything else?

Because the residence nil rate band is tapered on the size of the estate, and from 2027-04-06 the pension is part of that estate. The band is reduced by £ 1 for every £ 2 of estate above the taper threshold. It is gone entirely at £2,350,000 with one band, or £2,700,000 with two.

Follow what that does to a pound. While the taper is running, one more pound of estate adds a pound to the taxable figure and takes fifty pence off the band, so the taxable figure rises by one pound fifty. At 40% that is sixty pence of tax on one pound of pension. The marginal inheritance tax rate on the pension is 60%, not 40%, for as long as the taper is biting.

This is the calculation every existing tool gets wrong from April 2027, and it will not look wrong. Computing the taper on the estate without the pension is exactly right today and produces a plausible, confident, generous answer the day after the rule changes.

Why is the combined rate 67% and not 85%?

Because income tax is charged on the pension after inheritance tax has been taken, not on the whole of it. s.637T ITEPA 2003, as amended by s.70(5) Finance Act 2026, gives the beneficiary a deduction equal to the inheritance tax paid on their share. So beneficiary pension share minus the inheritance tax attributable to that share, and the income tax is marginal rate times the reduced figure.

Work it through at 40% inheritance tax and an additional rate beneficiary. Inheritance tax takes 40p of every pound. Income tax at 45% then applies to the 60p that is left, which is another 27p. That is 67p in total. Without the deduction it would be 85p.

The same arithmetic gives 52% for a basic rate beneficiary and 64% for a higher rate one. All three assume the member died at 75 or over and that no nil rate band is left to cover the pension. They are worst cases, not defaults.

The calculator will usually show you slightly less than those three, and that is the more accurate answer rather than a caveat. It apportions the inheritance tax across the chargeable estate at the estate rate, so the nil rate band shelters a proportionate slice of the pension along with everything else, and the combined figure rises towards 52, 64 and 67 as the estate grows and the band stops mattering. The published figures assume no band shelters the pension at all, which is true only for large estates.

The genuine worst case is 84%, and it needs both interactions at once. Inside the residence band taper the marginal inheritance tax rate on the pension is 60% rather than 40%. If the inherited income also lands in the personal allowance withdrawal band, the effective income tax rate on what is left is 60% rather than 40%. That is 60%, then 60% of the remaining 40%, which is 84%. Higher figures than that circulate in commentary. This page does not print one it cannot show the arithmetic for.

What happens to a will that leaves exactly 10% to charity?

It may stop qualifying for the 36% rate. This is the consequence most likely to catch an existing will, and it is worth checking before April 2027 rather than after.

The reduced rate is tested per component, not across the estate. The estate splits into survivorship, settled property and general components, and pension property falls in the general one. Bringing the pension in enlarges that component, which enlarges its baseline amount, which raises the cash sum needed to reach 10%. A legacy drafted as a fixed amount that was exactly 10% of the baseline in 2026 can be short of it in 2027 without a word of the will changing.

One mechanism exists that is worth knowing about: components may be merged by election within two years of death.

The two year rule, for a death under 75. Benefits must be designated or paid within two years of the scheme administrator knowing, or reasonably being able to know, of the death. Income tax applies even where the member died under 75. This calculator shows no income tax for a death under 75, which assumes the deadline is met. It is a real deadline with a real cost and nothing about the 2027 change alters it.

What is not settled, and what is out of scope?

Not settled in the law. Non-registered or excepted group life cover and An annuity with a guarantee element are recorded here as unresolved. This tool will not tell you how they are treated, because nothing does yet. The list of pension types it offers is not exhaustive either, and anything you cannot place against it should be treated as unsettled rather than assumed to be in scope.

Pending from HMRC. Guidance, manuals, forms and interactive tools are due spring 2027. The statutory instrument behind the reporting duties is SI 2026/818, laid 2026-07-15, in force 2027-04-06. Its draft proposed reporting of death in service benefits and that was removed before the final version, so anything written against the draft is out of date.

The payment deadline is 6 months and has not moved. The House of Lords Economic Affairs Finance Bill Sub-Committee recommended extending it to twelve months. The Government rejected that in its response of 30 March 2026. Twelve months is not a possibility to plan around.

Deliberately not built. Each of these is left out rather than quietly approximated:

The withholding and direct payment notice mechanics. Process rather than calculation, and awaiting the spring 2027 guidance.
Annuity guarantee valuation. Not specified, so any figure here would be invented.
Business and agricultural property relief. Neither is available on notional pension property in any case.
Multiple pensions with different beneficiaries. One pension and one beneficiary. A second pension changes the apportionment of the inheritance tax and therefore the income tax on both.

One simplification inside what is built, stated so it is not mistaken for the full rule: the reduced rate test is applied to the estate as a single component rather than to each of the three separately. Separately, and not a simplification, the calculator shows two different figures for the inheritance tax on the pension. One is the tax apportioned to it at the estate rate, which is what the income tax relief is calculated on. The other is what the pension actually added to the bill. They differ whenever the taper is involved and both are worth seeing.

This tool computes and does not recommend. There is no suggestion here that anyone should draw down a pension, change a nomination or restructure a will. This is general information rather than financial, tax or legal advice, and estate planning turns on individual circumstances that no calculator sees.

Mojo takeaway

Two dates decide almost everything here. The date of death, either side of 2027-04-06, and the age at death, either side of 75. Get those two right and the rest is arithmetic. The number worth looking at is not the inheritance tax, it is the combined rate on the pension once income tax has followed it.

Common questions

Does the pension really change the tax on the rest of the estate?: Yes, through the residence nil rate band. The band tapers on the size of the estate, and from 2027-04-06 the pension counts towards that size. An estate of £2,000,000 with a £400,000 pension is a £2,400,000 estate for the taper, which is past £2,350,000 and loses the whole band. The tax rises by more than 40% of the pension.
Is the combined rate really 67%?: At worst, for an additional rate beneficiary where the member died at 75 or over and no nil rate band is left for the pension. It is 52% for a basic rate beneficiary on the same assumptions. Where the residence band taper is also biting, the marginal inheritance tax rate on the pension is 60% rather than 40%, and with the personal allowance withdrawal band on top the worst case reaches 84%. The calculator uses your own numbers and will usually show less, because it lets the nil rate band shelter a proportionate slice of the pension rather than assuming it shelters none of it.
Why is income tax not simply added to the inheritance tax?: Because s.637T ITEPA 2003 gives the beneficiary a deduction for the inheritance tax paid on their share, so the income tax applies to the pension net of it. Adding the two rates together would give 85% for an additional rate beneficiary. The correct answer is 67%.
My spouse inherits the pension. Is there nothing to pay?: No inheritance tax, because spouse or civil partner and charity are exempt. Income tax is a separate question with a separate answer: the exemption is inheritance tax only and does not cover income tax on withdrawal. A spouse inheriting from a member who died at 75 or over pays income tax on withdrawal in the ordinary way.
The member died under 75. Is the pension free of income tax?: Broadly yes, but only if benefits are designated or paid within two years of the scheme administrator knowing, or reasonably being able to know, of the death. Income tax applies even where the member died under 75. Inheritance tax is a separate layer and applies from 2027-04-06 whatever the age at death.
Does it matter that the beneficiary lives in Scotland?: For the income tax half, yes. Scottish rates run higher at the top, so the combined figure is higher for a Scottish beneficiary on the same pension. Inheritance tax is UK wide and does not change. This tool asks for the rate directly rather than deriving it, partly because the Scottish figures it holds are band rates with no thresholds attached.
Can I still leave 10% to charity and get the 36% rate?: It depends on whether the legacy is written as a percentage or a fixed sum, and on how large the pension is. The test is applied to the general component, which is where pension property lands, and bringing the pension in raises the amount needed to clear 10%. A fixed legacy that qualified before April 2027 may not afterwards.

For general information and education only. This tool shows an illustration based on the figures you enter - it does not know your circumstances, tax position, or appetite for risk, and nothing here is financial, investment, tax, or legal advice. It is not intended to be relied on when making a decision about any particular financial product. Before acting, check the figures against your own documents and consider advice from a licensed financial professional in your country.

Rules current as of 24 August 2026. Set by HM Revenue & Customs, Scottish Government. Rates, thresholds and official scales change on each authority’s own schedule, so check the source before relying on a figure for anything that matters.