Her Widow's Pension Is Not Caught By The 2027 Rule

A widow's or widower's pension from a final salary scheme is not caught by the inheritance tax change arriving on 6 April 2027. If you have read a headline about pensions being pulled into inheritance tax and felt your stomach drop, this is the part that should settle it: a defined benefit survivor pension — the monthly income your husband, wife or civil partner's scheme pays you after they die — is specifically left out of the 2027 rules. It will keep being taxed as income, exactly as it is now.

The change that is coming is real, and it is significant, but it is aimed at something different: unused pension pots and certain lump sum death benefits, not the survivor's income a final salary scheme was built to pay. The two things get muddled together in the coverage, and a couple who have read the headlines can end up frightened about a pension that was never in scope.

This page draws the line clearly. It sets out what the April 2027 change actually does, why a dependants' scheme pension sits outside it, and what genuinely is caught — because there is a real change to plan around, just not the one people panic about first.

The short answer: a scheme survivor pension is left out

Defined benefit schemes — the final salary and career-average pensions run by employers, the public sector schemes, the old company schemes — pay a surviving spouse, civil partner or dependant a pension of their own after the member dies. It is a proportion of the member's pension, paid monthly for life, and it has always been taxed as the survivor's income under PAYE.

That treatment is not changing in 2027. A dependants' scheme pension is not a pot of money that can be handed on; it is a promise to pay an income, and there is nothing sitting in an account to bring into the estate. The government has confirmed that these survivor pensions are outside the inheritance tax change. If the pension you are worried about is a monthly income from a final salary scheme, you can stop worrying about the 2027 rules specifically: they do not reach it.

What the April 2027 change actually does

From 6 April 2027, unused pension funds and certain lump sum death benefits held in registered pension schemes are to be brought into the value of a person's estate for inheritance tax. Inheritance tax is charged at 40% on the part of an estate above the available nil-rate band, which is £325,000 per person, and pensions have until now generally sat outside that calculation. That is the shift: a pot that could previously pass down largely outside inheritance tax will, from that date, count towards it.

Source: HM Revenue & Customs, Inheritance Tax on unused pension funds and death benefits (policy paper), GOV.UK, published under the Open Government Licence v3.0.

The detail of exactly which pots and which lump sums are drawn in, and how the tax is reported and paid, is the substance of the change, and we go through it in how an unused pension pot moves into the taxable estate from 2027. For most families the headline is enough to explain the alarm: a large defined contribution pot that everyone assumed would pass to the children tax-efficiently may now be exposed to inheritance tax. That is a genuine planning problem. It is just not the same thing as a survivor's scheme pension.

Why a dependants' scheme pension is excluded

The reason for the exclusion is baked into what the two things are. Inheritance tax is a tax on the transfer of value — on assets passing from one person to another. An unused pension pot is an asset: a defined sum that can be paid out, inherited, or drawn down. A defined benefit survivor pension is not an asset in that sense. Nobody inherits a fund. The scheme simply continues paying an income to the survivor, and that income is taxed as income when it lands.

So there is nothing for inheritance tax to bite on. Bringing a survivor's monthly pension into the estate would mean putting a capital value on an income stream that the survivor cannot cash in, sell or pass on — which is why dependants' scheme pensions were left outside the change rather than being dragged in and then exempted. The practical result for you is the same either way: your survivor's pension continues to be taxed as your income, at your marginal rate, and the 2027 rules do not touch it.

What genuinely is caught

It helps to say plainly what does fall inside the change, so you can tell whether any of your own pensions are affected. Broadly, the rules bring in unused defined contribution funds — the pots of money in personal pensions, SIPPs and workplace defined contribution schemes that have not been used to buy an income — and certain lump sum death benefits paid from registered schemes.

The catch that surprises people is that the same person can have one pension that is caught and another that is not. Someone might have a final salary pension paying their spouse an excluded survivor income, and a separate personal pension pot that is fully in scope. The nomination form on that second pot suddenly matters a great deal, because who it passes to affects both the inheritance tax charge and the income tax the recipient pays. If your nomination forms have not been looked at since you set the pension up, the point where you decide who gets what is exactly the point that has become more expensive to get wrong — a risk we set out in why an old nomination form still governs the pot after you retire.

How this plays out: a worked example

Take a couple in their late sixties. One of them spent thirty years in a public sector scheme and now draws a final salary pension; the other built up a personal pension and moved it into a SIPP, most of which is still invested and has not yet been drawn. On paper they have two pensions, and the 2027 headlines read as though both are suddenly exposed. They are not, and the reason is the distinction this page keeps coming back to.

The final salary pension carries a survivor's benefit: if the member dies first, the scheme pays their spouse a proportion of that pension for the rest of their life. That survivor income sits outside the 2027 change. Nothing about it is brought into the estate, and nothing about the way it is taxed alters — the surviving spouse receives it and pays income tax on it under PAYE, month by month, exactly as the member did while alive.

The SIPP is the pension to look at. It is a pot of money, and from 6 April 2027 the unused part of it is capable of being counted in the estate for inheritance tax. Who it passes to decides two things at once. If the member nominates the surviving spouse, the spouse exemption keeps the pot out of the inheritance tax charge on the first death; if the member nominates the children, the value above the available nil-rate band can be chargeable in the estate. Layered on top of that, and quite separate from it, is income tax: whoever ends up receiving the pot pays income tax on what they draw from it, at their own marginal rate, in the years they take the money. A single nomination decision therefore sets both the inheritance tax exposure and the income tax bill that follows it.

The couple's real decision is not about the final salary pension at all — that looks after itself — but about the SIPP, and about whether the survivor income the household would be left with is enough to live on. Where a defined benefit survivor pension would still leave a shortfall the family depends on, that is the point at which some households weigh up cover that pays an income to fill the gap, sitting alongside the scheme pension rather than duplicating it.

The other exclusions: death in service and the spouse exemption

Two more reassurances are worth stating because they are so easily lost in the noise.

First, death in service benefits paid from a registered pension scheme are excluded from the 2027 change. The lump sum your employer's scheme would pay if you died while working for them is not caught, which is one of the few unambiguously good pieces of news in this area — we cover it, and its limits, in how death in service escapes the 2027 pension inheritance tax change. Whether such cover is arranged as an excepted or a registered scheme can still change the tax on it in other ways, which is a separate question we explain in the difference between excepted and registered group life cover.

Second, the spouse and civil partner exemption is preserved. Anything passing to a husband, wife or civil partner remains exempt from inheritance tax, pensions included. That matters most in blended families, where one share of a pot may pass exempt to a spouse while another share passes to children and is chargeable — but for a couple simply worried about the survivor being taxed, the exemption is the backstop that means a transfer between the two of you is not where the tax lands.

What to check before April 2027

Because the answer depends entirely on what kind of pension you each hold, the single most useful thing you can do is establish that. Is each pension a defined benefit promise — a proportion of salary, paying an income — or a defined contribution pot of money? The first is largely outside the 2027 change; the second is the kind being drawn in.

Once you know that, check that every nomination or expression-of-wish form is current, because where a chargeable pot goes affects both taxes. Divorce, remarriage and the arrival of children are the moments these forms fall out of date, and pension paperwork is almost always the part that gets missed — the reason we treat it separately in why divorce rewrites your will but not your pension nomination. None of this is advice about your particular affairs; it is the groundwork that lets an FCA-authorised broker or a pension adviser give you an answer that fits your own pensions rather than the headlines.

Where the worry underneath all this is that a survivor would be left short of income, some families look at cover that pays a regular income rather than a lump sum, which is closer in shape to the scheme pension it would sit alongside. If that is worth exploring for you, you can get life insurance quotes priced against your own age and circumstances.

Scotland and Northern Ireland

Inheritance tax is a UK-wide tax, so the 2027 change, the exclusion for dependants' scheme pensions, the death in service exclusion and the spouse exemption apply the same way in Scotland and Northern Ireland as in England and Wales. There is no separate Scottish or Northern Irish version of the pension rule.

What differs is how an estate is wound up around it. In Scotland the process is confirmation rather than probate, and Scottish succession law gives a surviving spouse and children fixed entitlements that England and Wales do not — the prior rights we explain in what a surviving spouse in Scotland receives before anyone else. Northern Ireland has its own probate office and its own procedure again. None of these change the inheritance tax owed, but they change how, and how quickly, the estate is settled. The wider set of questions sits in our guide to pensions, nominations and death benefits.

Frequently asked questions

Is a widow's pension from a final salary scheme caught by the 2027 change?

No. Dependants' scheme pensions from defined benefit arrangements sit outside the change taking effect on 6 April 2027, which is aimed at unused pension funds and lump sum death benefits. A survivor's income from a final salary scheme continues to be taxed as income, exactly as now.

What is actually included from April 2027?

Broadly, unused defined contribution funds and lump sum death benefits from registered pension schemes are brought into the estate for inheritance tax. Death in service benefits from registered schemes are excluded, as are dependants' scheme pensions, and the spouse and civil partner exemption is being preserved.

Do we need to do anything before April 2027?

Check what type each of your pensions actually is, because the answer differs between a defined benefit promise and a pot of money. Then check that every nomination form is current, since where a pot goes affects both the inheritance tax position and the income tax the recipient pays.