Pension Nomination Form UK: IHT on Pension Death Benefits and the April 2027 Reform (2026)
Your pension pot is currently outside your IHT estate — but from April 2027 it will be included. Updating your nomination form now and structuring nominations correctly is one of the most urgent IHT planning steps before the reform takes effect.
April 2027 Reform — Action Required
From 6 April 2027, unused pension pots will be included in your IHT estate. Most people have not updated their pension nominations to reflect this change. Review ALL pensions and update nominations before the deadline.
| Scenario | Income Tax | IHT Pre-April 2027 | IHT Post-April 2027 | Action |
|---|---|---|---|---|
| DC pension, member dies under 75, spouse nominated | Tax-free lump sum OR drawdown (tax-free) | NOT in estate — discretionary trust; NO IHT | Spouse nomination → s18 IHTA spousal exemption → £0 IHT on first death. Second death: pension included in surviving spouse's IHT estate | URGENT: ensure spouse is nominated AND review second-death planning. Consider nominating children for a portion where second-death IHT is a concern |
| DC pension, member dies under 75, children nominated | Tax-free lump sum OR drawdown (tax-free if under 75; income tax at beneficiary's rate if drawdown continues after 75) | NOT in estate; NO IHT; children receive full tax-free amount | Pension included in deceased's IHT estate at death; IHT charged on total estate; pension scheme administrator pays IHT to HMRC; children receive balance net of IHT. Children still receive income tax free drawdown (if continuing, until they reach 75) | Update nomination to named children; consider whether spousal route + second-death planning is better for large pensions post-2027 |
| DC pension, member dies age 75+, any beneficiary nominated | Income tax at beneficiary's marginal rate on all withdrawals (lump sum or drawdown). No tax-free cash available (the member's 25% tax-free cash is only available before 75 in most cases) | NOT in estate; NO IHT; full pot available to beneficiaries (minus income tax on withdrawal) | Pension in IHT estate; IHT payable; then income tax on withdrawals. DOUBLE TAX: pension hit by both IHT (up to 40%) AND income tax (up to 45%) on the same funds. Effective rate on high-income beneficiaries: combined tax up to ~67% | CRITICAL for large pensions: plan now to reduce DC pension pot before 75. Consider: maximise pension contributions and start drawdown earlier; spend pension first (keep ISA/other assets for inheritance); consider annuity for portion of pot |
| DC pension, nominated 'my estate' or 'my executors' | Income tax charged on the pension payout to the estate (even if member under 75) | PENSION IN ESTATE — entirely avoidable mistake. Full pension value subject to IHT. Pension NOT protected by discretionary trust. | Worst possible outcome — pension in estate for both IHT (40%) AND income tax. NEVER do this. | Change nomination to named individuals IMMEDIATELY. Contact pension provider. |
| Excepted Group Life / Death in Service (EGL policy) | Tax-free lump sum — no income tax (provided within LTA — LTA abolished from April 2023 — Finance Act 2023). Held in employer-established trust | NOT in estate; NOT IHT subject. Lump sum paid to trustees of employer trust; distributed to nominated beneficiaries | NOT AFFECTED by April 2027 pension reform. Excepted Group Life policies are NOT pension funds — they are employer-purchased life policies in trust; explicitly excluded from the reform. Keep up to date nomination for EGL as a separate exercise from pension nomination | Confirm your employer's group life policy is an EGL/Relevant Life Policy (not a registered pension). Update the EGL nomination separately. |
| Defined Benefit (Final Salary) pension, death in service | Lump sum typically 2-4× salary; tax-free if paid to nominated person or trust; spouse's pension for surviving spouse taxable as income | Lump sum: NOT in estate if paid under discretionary trust (as most DB schemes are structured). Spouse's pension: not valued for IHT on first death (continuation of pension — not estate asset) | DB pensions are more complex — April 2027 reform primarily targets DC pension pots; DB schemes may have different treatment for the 'pension savings' element. Consult scheme trustees. | Update DB scheme expression of wishes form. Confirm scheme's trust structure with pension administrator. |
| SIPP (Self-Invested Personal Pension) with property or AIM investments | Drawdown investments grow free of CGT and income tax inside the SIPP. Death benefits paid at trustee discretion to nominated beneficiary | NOT in estate; NO IHT. AIM shares within SIPP do NOT get BPR (BPR only applies to directly held unquoted shares — not those held via a pension). But pension itself is IHT-free currently | SIPP value included in IHT estate (including the property/AIM holdings within the SIPP). The pension's AIM shares do NOT reduce IHT via BPR on second look — they are part of the pension pot which is now in the estate as a pension pot (not as direct AIM holdings). Complex planning required. | For large SIPPs: consider taking benefits before April 2027 and investing outside pension in BPR-qualifying AIM shares DIRECTLY (where BPR applies). Specialist advice essential. |
Pension IHT UK 2026-27 and April 2027 reform. Current treatment: most DC pensions held in discretionary trust by pension trustees; NOT in deceased's IHT estate; pension death benefits paid at trustees' discretion to nominated beneficiary. Income tax: death under 75 = tax-free lump sum or drawdown; death 75+ = income tax at beneficiary's marginal rate. April 2027 reform (Autumn Budget 2024; secondary legislation under Finance Act 2025): registered pension scheme death benefits (unused pension pots) included in IHT estate from 6 April 2027; pension scheme administrators handle IHT payment to HMRC; s18 IHTA spousal exemption applies to spousal nominations on first death; creates second-death IHT concentration risk. Death in service / Excepted Group Life (EGL): NOT registered pension; NOT affected by April 2027 reform; held in employer trust; always outside IHT estate. Never nominate 'my estate' — brings pension into probate and IHT estate. Expression of wishes is NOT legally binding — trustees have discretion; always followed in practice. Update nominations: SIPP provider; workplace pension; any old personal pensions. IHT409: pension questionnaire on IHT400 — executors must complete for all pensions. Lifetime allowance: abolished from April 2023 (Finance Act 2023) — no LTA charge. BPR: AIM shares within SIPP do NOT qualify for BPR (BPR only applies to directly held unquoted shares). CGT: no CGT within pension wrapper.
Pension Nominations and IHT: Complete Guide
How pension death benefits are currently treated for IHT
Most defined contribution (DC) pensions are established under a discretionary trust by the pension provider. The assets in your pension are technically held by the scheme's trustees — not by you. This has a critical consequence: because you do not legally own the pension assets (the trustees do, for the benefit of scheme members), the pension pot is NOT in your estate for probate or IHT purposes under current law. When you die, the trustees exercise their discretion to pay the death benefits to the people you nominated — the expression of wishes (or nomination form) tells the trustees who you would like to receive the money. In almost every case, trustees follow the expression of wishes — but they are not legally obliged to. The practical result: for most people, their DC pension sits entirely outside their IHT estate. A £500k pension pot = £0 IHT. This is one of the most powerful IHT planning tools available and is the reason financial advisers have long recommended leaving pensions unspent until last — drawing on ISAs, savings, and property first, and passing the pension to the next generation IHT-free. This changes in April 2027.
The April 2027 pension IHT reform — what changes
The Autumn Budget 2024 announced that unused pension pots would be brought into the scope of IHT from 6 April 2027. This represents the most significant change to pension IHT planning in decades. From April 2027: the value of your unspent pension pot at death will be ADDED to your estate for IHT purposes. The IHT is calculated on the total estate (including pension), and the pension scheme administrator pays the pension's share of IHT directly to HMRC — separately from the rest of the estate. The pension death benefit (net of IHT) is then paid to the nominated beneficiary. The IHT calculation: example — estate (excluding pension) = £700k; pension pot = £500k; total estate = £1.2m. Assuming NRB £325k + RNRB £175k (if home to children) = £500k threshold: IHT = 40% × £700k = £280k. Before April 2027: IHT was 40% × £200k (estate only) = £80k. The pension adds £200k to the IHT bill in this example. For larger pensions, the impact is even more pronounced. Critically: the spousal exemption (s18 IHTA) applies to pension death benefits passed to a surviving spouse from April 2027 — so a spousal nomination still means no IHT on first death. But this creates a second-death problem: the surviving spouse's estate now includes their own pension plus the inherited pension. The urgency: everyone with a DC pension should review and update their nominations NOW, well before April 2027.
Expression of wishes — how nominations actually work
The nomination form (also called 'expression of wishes' or 'nomination of beneficiaries') is the document you send to your pension provider to tell the trustees who you would like to receive your pension death benefits. It is NOT a will. It does NOT override the trustees' discretion. But in practice, trustees ALWAYS follow it unless there is a specific reason not to (e.g., the nominated person has died; the person's circumstances have changed significantly; there is a dispute among potential beneficiaries; the nominated person is a minor where a trust is needed). Key points about nominations: (1) update your nomination whenever your personal circumstances change — marriage, divorce, children born, beneficiary pre-deaths, separation from a partner; (2) you can nominate MULTIPLE beneficiaries with proportions (e.g., 50% to spouse, 25% to each of two children); (3) you can nominate a trust as a beneficiary (e.g., a family trust) — this allows the trustees to pay into your own trust rather than to individuals directly; (4) NEVER nominate 'my estate' — this brings the pension into your estate, subjecting it to IHT and probate delays; (5) most pension providers allow online nomination updates through their member portal — it takes minutes and there is no cost. Important: your pension nomination is separate from your will and is governed by the pension scheme rules. Updating your will does NOT automatically update your pension nomination. If you remarry after making a will, the pension nomination made before the marriage remains in force (unlike the will, which is revoked by marriage — s18 Wills Act 1837). Always update both.
Tax treatment of pension death benefits — before and after 75
The age 75 threshold is critical for understanding how pension death benefits are taxed: (1) Member dies UNDER 75: lump sum or drawdown paid to any nominated beneficiary — INCOME TAX FREE regardless of how much is paid out. This applies to the full pension pot. No income tax on lump sums; no income tax on drawdown withdrawals by the beneficiary (until the beneficiary reaches 75 and takes further withdrawals). Defined contribution pension death benefit under 75 = effectively the most tax-efficient inherited asset available. (2) Member dies AGE 75 OR OVER: lump sum paid to nominated beneficiary — taxable at the beneficiary's marginal income tax rate (20%, 40%, or 45%). Drawdown payments — also taxable at the beneficiary's marginal rate. A beneficiary who is a basic rate taxpayer (or a grandchild) pays only 20% income tax on the pension they receive. A beneficiary who is a higher rate taxpayer pays 40%. Post-April 2027 interaction: if the member is 75+ at death, the pension is in the IHT estate (40% IHT) AND withdrawals are subject to income tax. For a higher rate taxpayer beneficiary receiving from a large pension: effective combined tax rate can approach 60-67% on the same pot. Planning implication: for those approaching 75 with a large unspent pension: (a) consider starting drawdown before 75 (removing money from the pension and reinvesting in ISA or spending on lifestyle) — reduces the post-75 pension pot; (b) consider phased tax-free cash withdrawals before 75 to crystallise pension benefits at the more favourable tax treatment; (c) consider whether annuity for a portion of the pension makes sense to avoid the large pot risk.
What to do now — pension nomination checklist before April 2027
With the April 2027 reform approaching, the following actions are relevant now: (1) Locate all your pensions: many people have multiple pensions from previous employers as well as their current workplace pension and any SIPPs or personal pensions. List every pension and its approximate current value. (2) Check the nomination on EACH pension: log into each provider's member portal (or write to the scheme administrators) and obtain the current expression of wishes on record. Update if outdated, incorrect, or reflecting previous family circumstances. (3) Review the nomination strategy: do you want to nominate your spouse entirely (maximising the spousal exemption on first death — but creating second-death concentration); or split between spouse and children/grandchildren; or nominate a trust. There is no universally correct answer — it depends on your estate size, family situation, and the scale of the pension relative to the rest of your assets. (4) Consider whether spending the pension before 75 makes sense: for people with very large pension pots relative to their estates, drawing down from the pension and investing in ISAs (which grow IHT-free if held in AIM ISA or spent before death) or making lifetime gifts may be more efficient. (5) Death in service / Excepted Group Life: these are separate from your pension — confirm and update the nomination on your employer's EGL/group life scheme separately. (6) Keep a record: note the date you updated each pension nomination and store the confirmation letter with your will and estate planning documents. Tell your executors where these documents are.
Frequently Asked Questions
Is a pension nomination form legally binding in the UK?
No. A pension nomination form (expression of wishes) is NOT legally binding — the pension trustees retain discretion over who receives the death benefits under the scheme rules. However, in almost all cases, trustees follow the nomination as a matter of practice. The key reason they retain discretion: it keeps the pension OUTSIDE the deceased's estate (because the deceased has no binding right to direct where it goes — it is the trustees' decision). If the nomination were legally binding, the pension would be treated as part of the estate for IHT and probate. The practical implication: update your nomination to reflect your current wishes; trustees follow nominations in virtually every case where the nominated person is alive and capable of receiving the funds. Confirm with your pension scheme that your nomination has been received and acknowledged. Your pension provider should give you a copy of the completed nomination form for your records.
Will my pension be subject to inheritance tax from 2027?
Under the April 2027 reform (announced Autumn Budget 2024): YES — unused pension pots will be included in the deceased's estate for IHT from 6 April 2027. Currently (2025-26), most DC pensions are outside the IHT estate (held in a discretionary trust by pension trustees). From April 2027, the pension pot is included in the IHT calculation: total estate = other assets + pension pot. IHT = 40% on the total estate above the available thresholds (NRB £325k + RNRB £175k if applicable). However: the spousal exemption (s18 IHTA) still applies — if you nominate your spouse, the pension passes to the surviving spouse free of IHT on first death. The surviving spouse then has the combined pension (theirs + inherited) in their estate for IHT on second death. Action: update pension nominations before April 2027 and consider whether your overall estate plan still achieves the IHT outcome you want. For large pensions (£500k+), professional advice is essential.
Can I leave my pension to my children to avoid inheritance tax?
Pre-April 2027: YES — nominating children means the pension passes to them outside the estate, with NO IHT and NO income tax (if you are under 75 at death). This is the most tax-efficient way to pass wealth to the next generation. Post-April 2027: the pension will be included in the IHT estate on your death regardless of who is nominated. IHT will be charged on the total estate; the pension scheme administrator pays the pension's share of IHT to HMRC. Children receive the balance net of IHT. They still pay income tax on withdrawals at their marginal rate (or tax-free if you die under 75 — the April 2027 reform affects IHT, not the income tax treatment on withdrawals). The income tax point: if your children are lower-rate or non-taxpayers, the effective tax rate on the pension they inherit can be quite low even after IHT. For a basic-rate taxpayer child receiving pension after IHT: 40% IHT + 20% income tax on the remaining 60% = effective combined tax of ~52% vs ~0% currently. For a non-taxpayer (e.g., grandchild in full-time education): 40% IHT only — still better than having the pension go through your estate with full IHT.
What happens to my pension if I die without a nomination form?
If you die without a valid nomination form, the pension trustees have full discretion to decide who receives the death benefits — guided by the scheme rules and their inquiries into your family/financial circumstances. In most cases, the trustees will pay to the obvious beneficiaries (surviving spouse or civil partner; then children). But the outcome is not certain, may take longer (trustees need to make inquiries), and may not match your wishes. Additionally, if the trustees cannot identify an obvious beneficiary or if the scheme rules provide, the death benefits may be paid to your estate — triggering IHT and probate delays. Complete and maintain a current nomination form for every pension. Even a simple nomination ('100% to [name], [address], [relationship]') is better than none.
Does death in service pay-out count as part of my estate for IHT?
No — Excepted Group Life (EGL) policies and Death in Service (DIS) benefits paid via a qualifying employer trust are NOT part of your estate for IHT. They are paid into a trust established by your employer, and from there to your nominated beneficiary. This is separate from your pension. Crucially: Death in Service / EGL is NOT affected by the April 2027 pension IHT reform — the reform targets registered pension scheme 'death benefits' (the accumulated pension pot), not employer group life policies held in trust. Keep your EGL/DIS nomination up to date as a separate form with your employer (HR or pension administration team). The amount payable under an EGL is typically 2-4× your salary, paid tax-free to the nominated beneficiary. The EGL trust nomination is also NOT legally binding — it is an expression of wishes to the trustees — but is always followed in practice.
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