For deaths on or after 6 April 2027, most unused UK pension funds and pension death benefits will be brought within the deceased person's estate for UK inheritance tax (opens the official GOV.UK page in a new tab). The change was legislated in the Finance Act 2026. A US citizen in the UK already sits inside US estate tax on worldwide assets, so a pension that used to fall outside the UK estate may now be exposed to both countries' rules at once.
This post is for US citizens living in Britain, British spouses of Americans, and families where a UK pension is the largest asset after the home. It extends our guide to avoiding US-UK double taxation, which covers pensions mainly as income. It sets out what changes, who pays, what stays outside the new rule, how the US side differs, and a worked example for a couple in Manchester.
What changes for UK pensions on 6 April 2027?
Most unused pension funds and pension death benefits will count as part of the estate of the person who dies, for inheritance tax purposes. Until now, funds left in a pension have generally sat outside the estate. The new rule applies to deaths on or after 6 April 2027, and the Finance Act 2026 contains the legislation.
HMRC and HM Treasury published technical notes explaining the measure, and the GOV.UK pages on inheritance tax (opens the official GOV.UK page in a new tab) are the place to check current guidance as it develops. The charge itself uses the ordinary inheritance tax machinery. The rate is 40% above the available nil-rate bands, and the nil-rate band is £325,000, so the pension is added to the rest of the estate before the tax is worked out.
The rule does not change how a pension is taxed on income, or the contribution rules described on the GOV.UK page about tax on private pension contributions (opens the official GOV.UK page in a new tab). It concerns what happens to the unused fund on death. Anyone who has treated a pension as a way to pass wealth outside the estate should expect to revisit that plan.
Who reports and pays the tax on a pension?
The personal representatives of the estate, meaning the executors or administrators, are responsible for reporting and paying inheritance tax on unused pension funds. The earlier consultation proposal, which would have put the liability on pension scheme administrators, was not taken forward. The pension provider supplies information, but the estate carries the obligation.
Because pensions are often paid out by trustees or providers outside the estate's control, the rules let personal representatives direct the scheme to withhold part of the benefits. HMRC's published technical note describes withholding of half of the taxable benefits for up to fifteen months from the date of death, and it does not apply to exempt beneficiaries or to continuing annuities.
For a family, the practical effect is a new task in the estate. Personal representatives will need to identify every pension, ask each provider for values, and take the pension into account in the inheritance tax account. A US citizen who names a British spouse or an adult child as executor should make sure that person knows what pensions exist and where the paperwork is kept.
Which pension benefits stay outside the new rule?
Death in service benefits paid from registered pension schemes are out of scope from 6 April 2027, whether the scheme is discretionary or non-discretionary. The usual exemptions for a surviving spouse or civil partner and for registered charities continue to apply, on their existing conditions.
The reliefs do not remove the rule for a typical personal or workplace pension that still holds a fund at death. They also do not make every spouse transfer simple. The conditions of the spouse exemption differ with residence and status, and a spouse who is not long-term UK resident needs separate thought. Our post on what changed after non-dom covers the residence background.
We have not confirmed how the rule applies to pension schemes established outside the UK, so this post does not say. Anyone with a transferred or overseas scheme should ask for a written view against the Finance Act 2026 and HMRC's current guidance instead of assuming either result.
- Death in service benefits from registered schemes are outside the new rule
- Benefits passing to a surviving spouse or civil partner keep the existing exemption
- Benefits passing to a registered charity keep the existing exemption
- Most other unused funds and death benefits come into the estate
- Overseas schemes need a separate written review before anyone relies on a view
Does UK inheritance tax apply to a US citizen in Britain?
It applies to worldwide assets once a person is a long-term UK resident, which means UK resident for ten of the previous twenty tax years. Below that point, UK inheritance tax generally reaches only UK-situated assets. Nationality does not decide the question, so a US citizen is treated like anyone else on residence.
A US citizen who has lived in the UK for many years is therefore usually within the net, and the pension joins the rest of the estate from April 2027. A recent arrival may not yet be long-term resident, and a person who has left the UK can remain within scope for a period after departure. The count is taken from UK residence under the Statutory Residence Test.
Residence also drives what the estate treaty does. HMRC treats a long-term UK resident as UK-domiciled under the US convention, and the treaty's tie-breaker applies if the US also claims the person. Our article on the US-UK estate tax treaty explains those tests and why the treaty has no saving clause.
How does US estate tax treat a UK pension?
The United States taxes the worldwide estate of its citizens, so a UK pension may be part of the US estate even though the UK treated it differently before. US estate tax (opens the official IRS page in a new tab) only produces a bill above the basic exclusion, which was $13.99 million for 2025, so many families owe no US tax and still need to file correctly.
Whether a particular pension is counted in the US gross estate, and how much, depends on the type of scheme and on who receives the benefits. We do not give a general answer here. The Form 706 (opens the official IRS page in a new tab) instructions are the starting point, and each scheme should be reviewed against them with its own rules and beneficiary nominations in hand.
The treaty pensions article helps with income, not with death. Article 18 generally leaves growth inside a UK scheme untaxed by the US until it is paid out, as our guide explains, but it does not address estate tax. The estate treaty gives credits, and a credit for UK inheritance tax against US estate tax is claimed on the return and limited to the tax on the property concerned.
What does a couple in Manchester need to do now?
Take a US citizen employed in Manchester, married to a British national, with a UK workplace pension, a share of a family home and some savings. She has been UK resident for well over the long-term residence period. Until now she may have treated the pension as outside the estate, with the house and savings forming the taxable part.
From April 2027 the pension falls into the estate on her death unless an exemption applies. Passing it to her husband may use the spouse exemption, but a US estate question follows, because the unlimited US marital deduction is generally unavailable for a spouse who is not a US citizen unless a qualified domestic trust is used. That can push the pension into US analysis even when UK tax is nil.
The sensible steps are a full list of her schemes, a review of nominations, a UK and US review of her will, and a note to her executor about the new reporting duty. Our US-UK pensions service, estate and trust planning and private client services work through those points together, and the gift tax return rules matter if she makes lifetime gifts.
- List every pension with the provider, scheme type and nominated beneficiaries
- Check whether the surviving spouse is a US citizen and long-term UK resident
- Review the will under both UK and US law at the same time
- Tell the executor which pensions exist and who holds the papers
- Revisit the plan when HMRC publishes further guidance
What should US families do before April 2027?
Review each pension, its nominated beneficiaries and the will together, in both countries. Decisions made on the assumption that a pension sits outside the UK estate need to be tested against the new rule. Those with large funds, a non-citizen spouse or UK and US children should start the review well before the change takes effect.
Lifetime gifts, pension drawdown and the order in which assets are spent are all choices that interact with the new charge. None of them is right for every family, and some have US consequences, including gift reporting and the treatment of foreign gifts for US beneficiaries. Beneficiaries who are US persons should read our post on inheriting from UK parents.
Our US-UK double taxation guide puts the treaty pension rules next to the credit mechanics, and the treaty page summarises the articles. Because the details of the new regime are still being settled in guidance, we confirm the position against HMRC's current publications before advising on a specific estate, and you can contact us to start that review.
General information, not advice. The right answer depends on your circumstances and the tax year concerned.
