HMRC has only recently (27th August 2026) clarified an important consequence of the forthcoming pension Inheritance Tax changes.
From 6 April 2027, most unused pension funds and pension death benefits will be brought within a person’s estate for Inheritance Tax purposes.
At first sight this sounds straightforward. However, the new rules can produce some surprising consequences — particularly where a surviving spouse later remarries.
First death – generally no Inheritance Tax for the spouse
Suppose a husband dies leaving a substantial pension fund and his wife is chosen to receive the pension benefits.
Although the pension will fall within the new Inheritance Tax regime from April 2027, transfers to a surviving spouse or civil partner can continue to benefit from the normal spouse exemption.
So, in a straightforward case:
Husband dies
↓
Pension passes to wife
↓
Spouse exemption applies
↓
No Inheritance Tax on that transfer
This does not necessarily mean that the pension has escaped Inheritance Tax permanently.
What happens if the widow keeps the pension invested?
Rather than withdrawing the whole fund, the widow may be able to leave the inherited pension invested in a beneficiary drawdown account and draw from it as required.
HMRC has now confirmed that if some of that inherited pension is still in the account when the widow subsequently dies, the remaining amount can be treated as part of her pension property for Inheritance Tax purposes.
Importantly, this can apply even where the original pension owner died before the new rules begin on 6 April 2027.
Now suppose she remarries
This is where matters become particularly interesting.
Assume:
- Peter dies leaving a pension fund of £500,000.
- His wife, Mary, inherits it and places it into beneficiary drawdown.
- The transfer to Mary benefits from the spouse exemption.
- Some years later Mary remarries John.
- When Mary eventually dies, £350,000 of Peter’s original pension is still held within her inherited pension arrangement.
At Mary’s death the £350,000 is now considered as part of Mary’s pension property.
If the pension arrangement allows Mary to nominate John, her new husband, to receive the remaining benefits, the transfer to John can potentially benefit from Mary’s spouse exemption.
The result could therefore be:
Peter → Mary → John
with no Inheritance Tax arising on either spouse-to-spouse transfer.
But whose money was it intended to be?
That leads to an important estate-planning question.
Peter may have thought:
“My pension will provide for my wife during her lifetime and ultimately benefit our children.”
But that is not necessarily what will happen.
Once Mary has inherited the pension benefits, the remaining fund may ultimately pass according to her subsequent pension nomination and the pension scheme rules.
If she remarries and nominates her new husband, substantial pension wealth originally accumulated by Peter could therefore move into the new husband’s hands.
On John’s eventual death it might then pass to:
- Peter and Mary’s children;
- Mary’s children;
- John’s children;
- another spouse;
- or other beneficiaries nominated by John,
depending upon the circumstances and the pension arrangements involved.
A pension nomination deserves the same attention as your Will
Historically, pensions have often been considered separately from the Will because pension death benefits were normally outside the estate for Inheritance Tax.
From 6 April 2027, that distinction becomes much less straightforward.
For many families it will be increasingly important to consider together:
- the Will;
- pension beneficiary nominations;
- beneficiary drawdown arrangements;
- second marriages and blended families;
- the intended destination of pension wealth after the surviving spouse dies; and
- the possible Inheritance Tax consequences at each death.
An old pension nomination which has not been reviewed for many years could produce a very different result from the one originally intended.
The important question
When reviewing your estate planning, it may no longer be enough simply to ask:
“Who receives my pension when I die?”
You may also need to ask:
“Who could eventually receive what is left of it after they die?”
That second question may prove to be just as important as the first.
A note of caution
The new pension Inheritance Tax provisions take effect for deaths on or after 6 April 2027. The precise treatment will depend upon the type of pension, the pension scheme rules, the beneficiaries selected and the circumstances at the time of death.
Pension providers can also have different rules concerning beneficiary and successor drawdown. Professional pension, tax or financial advice may therefore be appropriate before changing existing pension arrangements or nominations.
If your Will or pension nominations have not been reviewed recently — particularly following a marriage, remarriage, divorce or other family change — this would be a sensible time to review them together.
Contact us to discuss your options HERE or call 079 888 30691.