Before anything else, one honest note. If you have come here because someone with a SIPP has recently died, I am sorry, please do not feel you need to take any of this in today, or even this week. It will still be here when you are ready.
I am not a financial advisor and nothing in this post constitutes financial advice. All investments carry risk and the value of your investments can go down as well as up. Please do your own research and consider seeking independent financial advice before making any investment decisions.
Whether you are trying to work out what happens to a pension someone left you, or you are the one holding the SIPP and want to know what your children or your partner will actually inherit, I want to answer the SIPP inheritance tax question directly and honestly, the way I try to answer everything on this blog.
I have held a SIPP for seven years now, and inheritance tax is one of those questions I put off looking into properly for far longer than I should have, the way most of us do. It felt like a problem for future me. But the rules are genuinely changing, and I would rather you hear the honest version now than get caught out by a headline later. So let me give you the direct answer first, then walk through the detail properly.
What this post contains
SIPP inheritance tax: the short answer
Currently, no. There is no inheritance tax on your SIPP while it sits outside your estate, which makes a pension a genuinely different tool from an ISA when it comes to passing on wealth, at least under today’s rules. But that is changing. From 6 April 2027, most unused pension funds, SIPPs included, are due to come into the scope of inheritance tax. And even once that happens, what your beneficiaries actually receive will still depend on your age when you die, because a pension carries a separate income tax question for beneficiaries that runs alongside the inheritance tax one, not instead of it.
How SIPPs differ from ISAs for inheritance tax
I have written before about how ISAs are subject to inheritance tax, because their value simply gets added to everything else you own when HMRC works out your estate. There is no special exemption for the ISA wrapper itself. If your estate is above your threshold, your ISA is counted in the total, full stop.
A SIPP has never worked that way, and that is the whole reason pensions and ISAs sit so differently on this question. So is a SIPP subject to inheritance tax the same way an ISA is? Not currently, no. Most UK pension schemes, SIPPs among them, are set up as discretionary arrangements.
When you die, it is the scheme administrator who decides who receives your remaining pension money, guided by the expression of wish form you filled in, rather than your will directly. That discretionary structure is what has kept pensions outside the taxable estate for decades, while ISAs, savings and everything else you directly own gets added up and measured against the nil rate band.
That difference is genuinely significant if you are trying to decide where to hold money for the years ahead, and it is one of the reasons I go through the choice properly in my SIPP vs ISA comparison, and in my guide to what a SIPP actually is if you want the fuller picture of how the account works day to day.
One thing stays the same on both sides, and it matters. If your ISA or your SIPP passes to your spouse or civil partner, that transfer is exempt from inheritance tax regardless of the amount, both today and after the 2027 pension changes take effect. The spousal exemption does not disappear, it simply sits alongside the new rules rather than being removed by them.
What happens to your SIPP if you die before 75
This is where SIPP inheritance tax gets tangled up with a separate question, income tax on your beneficiaries, and the two genuinely are not the same thing.
If you die before your 75th birthday, your SIPP can usually be passed to your beneficiaries completely free of income tax, whether they take it as a lump sum, move it into their own drawdown, or use it to buy an annuity. Two conditions need to be met. The money needs to be designated to them within two years of the scheme administrator becoming aware of your death, and the total needs to fall within your Lump Sum and Death Benefit Allowance, which stands at £1,073,100 for most people, according to MoneyHelper, the government backed guidance service.
If you have already taken a tax free lump sum from your own pension during your lifetime, that reduces what remains of the allowance for your beneficiaries.
For most people, that £1,073,100 figure is simply not going to be a practical concern. But the two year window genuinely is worth knowing about, because it depends on when the scheme administrator learns of the death, not the date of death itself. If a death is not reported to the pension provider promptly, that clock can run down without anyone realising it.
SIPP inheritance tax after 75
Die at 75 or later, and the picture changes. Your beneficiaries will pay income tax at their own marginal rate on whatever they draw from the inherited SIPP, whether that is a lump sum, drawdown income, or an annuity. The Lump Sum and Death Benefit Allowance does not apply at all past this point, so there is no equivalent tax free ceiling to rely on.
This is the part of SIPP inheritance tax after 75 that catches people out, because it can genuinely mean two separate tax charges landing on the same money. Currently, that is only ever an income tax question, since the pension itself still sits outside your estate. But once the 2027 change is in force, an estate large enough to owe inheritance tax could see 40 percent taken off the top of the pension value first, and then income tax charged to the beneficiary on what is actually paid out to them.
I want to be honest that I have seen this described elsewhere with quite dramatic combined tax figures attached, and I have deliberately not repeated any of those numbers here, because the true combined rate depends entirely on the size of the estate and the beneficiary’s own income, and a single scary sounding percentage does not reflect that properly. What I can tell you plainly is that the mechanism is real, and for anyone with a larger estate and a pension they are drawing after 75, it’s worth understanding now rather than discovering after the fact.
The April 2027 change to SIPP inheritance tax rules
Here is what is actually changing, verified directly against HMRC’s policy paper, published 21 July 2025. This SIPP pension inheritance tax change is one of the biggest shifts to estate planning in years, so it is worth understanding properly rather than skimming a headline.
From 6 April 2027, most unused pension funds and pension death benefits will be brought within the value of your estate for inheritance tax purposes.
Legislation is being introduced through Finance Bill 2025 to 2026 (Clause 63 charges the tax, Clause 64 sets out liability, Clause 65 covers withholding of benefits and payment of tax by the scheme administrator, and Clause 66 makes connected amendments to the Inheritance Tax Act 1984) to make this happen. One detail worth knowing, because it changed partway through the process, is who is actually responsible for reporting and paying the tax. The original 2024 proposal put that duty on pension scheme administrators. Following a further consultation, the government confirmed in July 2025 that it is your personal representatives, the people handling your estate after you die, who will be liable for reporting and paying any inheritance tax due on your pension, not the pension provider itself.
Not everything is caught by these SIPP inheritance tax rules. Death in service benefits stay outside the scope of inheritance tax entirely, as do dependant’s scheme pensions paid from defined benefit or collective money purchase arrangements. And the spousal exemption I mentioned earlier is explicitly preserved, alongside the existing exemption for death benefits left to a registered charity.
It is also worth putting some honest scale on this, because headlines about pensions losing their inheritance tax protection can make it sound like everyone is affected.
According to HMRC’s own impact assessment in its policy paper on the change, of around 213,000 estates expected to hold inheritable pension wealth in 2027 to 2028, roughly 10,500 will have an inheritance tax liability where they would not have had one before, and around 38,500 will pay more inheritance tax than they otherwise would have.
Where that does happen, the average increase in the inheritance tax bill is expected to be around £34,000. Most estates, in other words, will simply carry on owing nothing at all. This is genuinely a change that matters most for people with larger combined estates, not a universal shift for every SIPP holder.
Figures correct at the time of writing, based on the current legislative proposal. Always check gov.uk for the latest position before making decisions based on this.
Who should think about this now
I am not going to pretend I can hand you a tidy list of tactics here, because I am not qualified to, and this is exactly the kind of decision where getting it wrong, or acting on generic advice that does not fit your situation, can be expensive and difficult to undo.
What I can tell you honestly is that this change is most relevant to you if your combined estate, pension included, is likely to sit above the nil rate band and residence nil rate band once everything is added together, or if you are already drawing your SIPP after 75 and have a larger estate behind it.
If either of those describes you, or you simply want proper clarity before 2027 arrives, this is a genuinely good moment to speak to a regulated financial adviser or a solicitor who specialises in estate planning, rather than trying to plan around it from a blog post, mine included. I go into when it is worth paying for that kind of advice, and when it genuinely is not necessary, in my post on SIPP advice.
If you are earlier in your journey, still building your pension rather than thinking about passing it on, the honest truth is that this change probably will not touch you for a long time, if at all. It is still worth knowing the shape of it, but it’s not a reason to lose sleep tonight. None of this happens in isolation from the rest of your finances either, and if you are trying to see the fuller picture of what you might need in retirement and what you might leave behind, my post on how much you need to retire in the UK is a reasonable place to start.
FAQ
Will SIPPs be subject to inheritance tax in 2027?
Yes, from 6 April 2027 most unused SIPP funds and pension death benefits will be brought into your estate for inheritance tax purposes, under legislation currently being introduced through Finance Bill 2025 to 2026. Death in service benefits, certain dependant’s scheme pensions, and anything left to a spouse, civil partner or registered charity remain outside the scope of this change.
Is a SIPP subject to inheritance tax right now?
Not usually. Most SIPPs are held in a discretionary trust structure, which currently keeps them outside your estate for inheritance tax purposes. That is different from an ISA, which is always counted as part of your estate. This changes from 6 April 2027, when most unused SIPP funds will be brought into the taxable estate.
What is the disadvantage of a SIPP pension?
On the inheritance tax side specifically, the main disadvantage from 2027 onward is that a SIPP will no longer be automatically shielded from inheritance tax the way it has been for years. Beyond that, a SIPP is self directed, so the investment decisions and the responsibility both sit with you, and your money is locked away until at least 55, rising to 57 from April 2028 under current rules, whatever your reason for wanting it.
How to avoid SIPP inheritance tax after 75?
I would gently push back on the word avoid here, because anything that sounds like a shortcut around a genuinely complex area of tax law is exactly where people get into trouble. What I can tell you honestly is that people in this position generally look at some combination of drawing down more of the pension during their lifetime, leaving assets to a spouse or civil partner where that applies, and reviewing the whole estate with a regulated financial adviser rather than the SIPP in isolation. None of that is a substitute for proper advice tailored to your own circumstances.
What is the 60,000 inheritance tax loophole?
This usually refers to the pension annual allowance, currently up to £60,000 a year for most people, and the fact that money paid into a SIPP currently sits outside your estate. Because of that, some people use pension contributions as a way to move money out of their taxable estate while also picking up tax relief on the way in.
I would be cautious about calling it a loophole exactly, it is simply how pension tax relief has always worked, and it becomes considerably less powerful as an inheritance tax strategy once the 2027 rules take effect, since the money would then sit inside your estate regardless.
What are the SIPP inheritance tax rules for a SIPP inherited from a spouse?
If your SIPP passes to your spouse or civil partner, it remains exempt from inheritance tax, both under the current rules and after the 6 April 2027 change. This exemption is explicitly preserved in the new legislation. Your spouse will still need to consider income tax on any withdrawals they later make, following the same before and after 75 rules that applied to you.
Angelina is the founder of Investing Adventures, where she helps women build confidence with money and investing. With seven years of personal investing experience, she breaks down complex financial topics into practical, actionable advice. Her mission is simple: to help more women take the driver’s seat in their financial future.
I am not a financial advisor and nothing in this post constitutes financial advice. All investments carry risk and the value of your investments can go down as well as up. Please do your own research and consider seeking independent financial advice before making any investment decisions.