Died At 76: What Your Children Are Left With After Tax

Yes. If someone dies at 75 or over, the money left in their pension is taxable in the hands of whoever inherits it, and there is no tax-free version of that outcome. Whether pension death benefits are taxable after age 75 comes down to two separate charges: the beneficiary pays income tax at their own marginal rate on whatever they draw out — as a lump sum or as drawdown income — and, from 6 April 2027, the unused pot is also counted in the deceased's estate for inheritance tax. The same money can therefore be taxed twice: once as part of the estate, and again as income when it is withdrawn.

That is a genuine change from how these pots have been treated for the last decade, and it is why the question is suddenly being asked in earnest. Until now, a pension left behind was one of the few things that usually passed outside inheritance tax altogether. The age-75 line already decided the income tax. The 2027 change stacks a second charge on top.

This page walks the two charges through in the order they actually apply, using one family's pot as a worked example, so you can see what an adult child inheriting a parent's pension might realistically be left with after tax rather than the headline figure.

The short answer: two taxes, in that order

Before April 2027, only one of these charges exists. Where a member dies at 75 or over, the pension pot passes to the beneficiaries free of inheritance tax, and they pay income tax at their own rate on what they take out. Where a member dies before 75, benefits paid or designated within the two-year window are normally free of income tax as well, which is why the age at death matters so much.

From 6 April 2027 the picture for the over-75 case changes. The unused pension fund is brought into the deceased's estate for inheritance tax alongside the house, the savings and everything else. So a family can now meet inheritance tax on the pot as part of the estate, and then income tax again as the surviving beneficiary actually draws the money down. The order is fixed: the estate charge comes first, the income charge second.

Nothing about this is paid through the will. Most pensions are written under a discretionary trust, which is why the scheme, not your executors, decides who receives the death benefit, guided by your nomination form. That structure is unchanged. What changes is that the value now counts towards the estate for tax even though it is not distributed through it.

Why age 75 is the line that changes everything

The whole of the income tax treatment of an inherited pension turns on one fact: whether the member was under 75 or 75 and over on the day they died. It is a hard line, not a sliding scale, and a death a week either side of a 75th birthday can produce completely different tax bills for the same pot.

Die before 75, and death benefits from a defined contribution pension that are paid or designated to a beneficiary within two years are normally free of income tax. Die at 75 or over, and every withdrawal the beneficiary makes is taxed as their income, at whatever rate they pay. There is no tax-free element and no special lower rate. If the beneficiary is a higher earner, the money is taxed as though it were extra salary landing on top of what they already earn.

This is the fact that this whole page hangs on, because the worked example below is deliberately built around a death at 76 — the case where both the income tax and, from 2027, the inheritance tax are fully in play. If you are dealing with a death before 75, the estate charge from 2027 can still apply, but the income tax layer usually does not, which changes the arithmetic considerably.

The first charge: income tax at the beneficiary's own rate

When a member dies at 75 or over, the person who inherits the pot does not receive it tax-free. They receive it into a beneficiary's pension arrangement, and income tax is charged on it as they withdraw it, at their own marginal rate. That last phrase is the one that does the damage, because a beneficiary's marginal rate depends entirely on their own income in the year they take the money.

For a taxpayer in England, Wales or Northern Ireland, income is taxed in bands: a basic rate, then a higher rate, then an additional rate on the top slice. A working-age adult child who already earns a good salary may be a higher-rate taxpayer before they touch the pension at all. Add a large pension withdrawal on top, and part of it can be taxed at the higher rate, and a large enough lump sum can spill into the additional-rate band and also strip away the personal allowance.

Source: HM Revenue & Customs, Income Tax rates and Personal Allowances, published under the Open Government Licence v3.0.

The single most expensive way to take an inherited pension is therefore usually to take the whole thing as one lump sum in one tax year, because it forces as much of the money as possible up through the bands in a single go. Whether there is a cheaper route depends on the scheme, which we come to below.

The second charge from April 2027: inheritance tax on the pot

The government announced at the 2024 Autumn Budget that, from 6 April 2027, most unused pension funds and pension death benefits would be included in the value of a person's estate when inheritance tax is worked out. The pot that used to sit outside the estate is being brought in.

Inheritance tax is charged at 40% on the value of an estate above the tax-free threshold, which is £325,000 for most people and is known as the nil-rate band. Anything passing to a spouse or civil partner is normally exempt, so a pension left to a husband or wife is not where the exposure bites. The exposure falls on money passing to anyone else — an adult child, a sibling, an unmarried partner — once the rest of the estate has already used up the nil-rate band. A former spouse is a different case again: whether an ex still has any claim on the pension usually depends on the court order made at the divorce, which we cover in what happens to a pension sharing or attachment order when your ex dies.

Source: HM Treasury and HM Revenue & Customs impact note, Inheritance Tax on unused pension funds and death benefits (2027-28), published under the Open Government Licence v3.0.

The mechanics of the pot moving into the taxable estate are set out in full in why putting your pension in a trust usually makes it worse, which is worth reading before anyone tries to engineer their way around this charge, because most of the obvious moves cost more than they save.

A worked example: one pot, both charges, in order

Take a father who dies at 76. He has already retired and drawn his tax-free cash years ago, and he leaves a remaining defined contribution pot of, say, £200,000. He nominated his adult daughter, who works full time and is already a higher-rate taxpayer on her own salary. The rest of his estate — the house, the savings — has used up his nil-rate band, so the whole pot is exposed. The figures below are an illustration built on that set of assumptions, applying the rates sourced above; they are not a prediction of any real family's bill.

The estate charge comes first. Inheritance tax at 40% on a £200,000 pot that falls entirely above the nil-rate band is £80,000. That leaves £120,000 notionally available to the daughter inside the beneficiary's pension.

Then the income charge. If she draws the whole £120,000 as a single lump sum, it lands on top of a salary that already uses her personal allowance and fills her basic-rate band, so almost all of it is taxed at the higher rate, and the top of it can tip into the additional-rate band. Taken as one lump, a large slice of that £120,000 goes in income tax, and what actually reaches her is materially less than half of the original pot. If instead she leaves the money invested and draws, say, a portion each year across several tax years, more of each year's withdrawal can be kept within her lower bands, and the total income tax bill comes down.

The exact figures will differ for every family, and the arithmetic changes completely if the father had died before 75, or if the beneficiary were a non-earner, or a spouse. But the shape holds: two charges, the estate one first and the income one second, both biting on the same £200,000.

What beneficiaries can actually do about the income tax

You cannot make either charge disappear, but the income tax layer is the one where the beneficiary has some control, and the lever is timing. Taking income across several tax years, rather than as one large withdrawal, keeps more of it inside the lower rate bands and can save a real amount over the whole pot.

Two conditions have to be met for that to be possible, and both are set before the death, on the member's paperwork. The scheme has to offer beneficiary drawdown at all, and the beneficiary has to have been eligible to be offered it — which for someone who is not a dependant usually means they were considered for it on the nomination form. Where that box was never ticked, a non-dependant beneficiary can be pushed into a lump sum by default, and a lump sum is exactly the outcome that maximises the income tax. It is worth checking, while you can still change it, that the form does what you think it does.

The practical steps for a beneficiary are narrow but useful: ask the provider whether beneficiary drawdown is available before withdrawing anything; find out what other income you will have in the year you plan to draw; and, before you take a penny, ask the provider what they intend to pay HMRC in respect of any inheritance tax, because from 2027 the reporting and payment mechanics sit partly with the scheme and partly with the estate. A payment that later has to be unwound is its own headache, as families discover when a bank takes back a pension payment after the death.

Where the pension sits alongside probate and the rest of the estate

One point that trips families up is that the pension does not usually wait for probate. Because it is paid at the scheme's discretion rather than through the will, the death benefit can often be paid out well before a grant is issued for the rest of the estate — which is why people sometimes assume, wrongly, that it has nothing to do with the estate at all. From 2027 it does, for inheritance tax, even though it still by-passes the will for distribution. We set out how the two run on different tracks in whether you need probate for a husband's private pension.

The honest planning response to all of this is rarely a clever structure. It is to keep nominations current so the right people are named, to understand which of your pensions is a pot of money and which is a scheme promise, and — where a real inheritance tax bill is going to land on someone who is not your spouse — to make sure there is money outside the estate to pay it, so nobody is forced to sell a home or empty a pot to settle a tax bill. If that is the gap you are looking at, you can get life insurance quotes and have an FCA-authorised broker price cover against the actual liability. The wider set of questions in this area is collected in our guide to pensions, nominations and death benefits.

Scotland and Northern Ireland

Inheritance tax and the pension rules are set at UK level, so the 40% rate, the nil-rate band and the 2027 change apply the same way in Scotland and Northern Ireland as in England and Wales. What differs is the income tax layer. Scottish taxpayers pay Scottish income tax on their earnings and on pension income, and the Scottish bands and rates are set separately by the Scottish Parliament, with more bands than the rest of the UK. A beneficiary who is a Scottish taxpayer therefore works out the income tax on an inherited pension against the Scottish rates that apply to them, not the rest-of-UK ones used in the worked example above.

Source: Scottish Government, Income Tax in Scotland, on the rates and bands of Scottish Income Tax, published under the Open Government Licence v3.0.

Northern Ireland uses the same income tax rates and bands as England and Wales, so the arithmetic there follows the worked example. In all parts of the UK the essential point is the same: after age 75 there is no tax-free version of an inherited pension, and from April 2027 a second charge can sit on top of the first.

Frequently asked questions

Are pension death benefits taxable if I die after 75?

Yes. Where death occurs at 75 or over, the beneficiary pays income tax at their own marginal rate on whatever they withdraw, whether they take it as a lump sum or as drawdown income. There is no tax-free treatment, and a large lump sum taken in a single year can push the beneficiary into a higher band and reduce what actually reaches them.

Will my children pay inheritance tax as well from 2027?

From 6 April 2027 unused pension funds are included in the estate for inheritance tax, charged at 40% above the available nil-rate band, and inherited pension income is then taxed at the beneficiary's marginal rate as it is drawn. The two charges apply to the same pot, in that order: the estate charge first, then income tax on withdrawals. Anything passing to a spouse or civil partner is normally exempt.

Can beneficiaries reduce the income tax by spreading withdrawals?

Taking income across several tax years, rather than as one large lump sum, can keep more of it inside lower rate bands, provided the scheme offers beneficiary drawdown and the beneficiary was considered for it on the nomination form. How much this saves depends entirely on their other income in each year, so it is worth working out before anything is drawn.