Is the pension I inherited from my mother tax free?
Executive summary
The default answer is: not necessarily — a pension inherited from a parent will generally become part of the deceased’s estate for UK Inheritance Tax (IHT) purposes from 6 April 2027, so it can be subject to IHT unless a specific exclusion applies (for example, payments to a surviving spouse/civil partner or certain dependants) [1] [2]. Prior to this change most pension pots were typically outside the estate and could pass free of IHT, but the law is shifting to bring most unused pension funds and death benefits into scope [3] [4].
1. The legal shift that changes the default position
Until recently most defined contribution pension pots and many death benefits were treated as outside the taxable estate because the scheme trustees had discretion over payment, so beneficiaries often avoided an IHT charge; the government has announced that from 6 April 2027 most unused pension funds and death benefits will be included in the estate for IHT purposes under draft Finance Bill measures [3] [2] [4].
2. Who pays and which pensions are excluded
Under the new design the liability for reporting and paying IHT will ordinarily fall to personal representatives or executors of the estate — pension scheme administrators will play a role in providing information but will not generally be made solely liable for the tax charge [5] [4] [3]; key exclusions remain, notably payments to a surviving spouse or civil partner and certain dependants’ scheme pensions, plus some death‑in‑service lump sums and specific DB survivor pensions [1] [6] [7].
3. The tax mechanics and the risk of “double taxation”
A practical complication flagged across industry commentary is the potential for combined tax burdens: unused pension funds could be liable for IHT as part of the estate and still attract income tax when beneficiaries draw the pension, creating the risk of effectively paying both taxes on the same pot unless careful planning or reliefs apply [2] [8]; commentators and providers warn this could be particularly acute for beneficiaries over age 75 who receive lump sums or taxable income from inherited pensions [2] [9].
4. Where this change bites hardest and behavioural responses
Advisers and industry bodies warn that the inclusion of pensions in estates will push more estates over existing nil‑rate bands (currently £325,000 with a residence band in many cases), meaning an additional cohort of estates could face IHT, and that SIPP holders holding illiquid assets (like commercial property) may create liquidity problems for executors required to settle an IHT bill [10] [9] [11]. The Treasury frames the reform as closing a perceived loophole where pensions were being used as wealth-transfer vehicles rather than for retirement, and expects most estates (over 90% by its estimate) to continue paying no IHT despite the change [9] [1].
5. Practical steps and unanswered specifics
For an individual beneficiary the immediate questions are: is the pension pot “unused” and now in scope, does the payment fall into an exclusion (spouse/civil partner/charity/dependant), and will the pension be paid as a lump sum or as an income stream — each factor changes the tax outcome, and executors will need to co‑ordinate valuations and reporting to HMRC [1] [7] [3]. Public reporting covers the statutory change and broad exclusions but cannot determine any single case’s outcome here; the sources do not provide a way to confirm whether a particular inherited pension from a named parent is exempt without scheme documents and the beneficiary’s circumstances, so a definitive personal ruling is beyond these materials [2] [3].
6. Bottom line and recommended next moves
The headline: an inherited pension from a mother will not automatically be tax‑free after April 6, 2027; it will usually count toward the estate for IHT and could be taxable unless it falls within one of the established exclusions or planning mitigations, and executors (not the pension trustees in most cases) will handle reporting and payment [2] [1] [3]. For clarity on any one inheritance the estate’s personal representatives and the pension scheme documents must be reviewed and professional tax or legal advice sought because the published guidance sets the new framework but cannot resolve individual factual permutations [4] [7].