How to avoid SIPP inheritance tax: for deaths from 6 April 2027 most unused pensions count towards the estate, so what you control is who receives it and how.

No legitimate step makes a SIPP disappear from the inheritance tax rules once they start. What you can do is understand how they apply, use the exemptions the law gives, and plan the rest of your estate around them. The 2027 rules meet each family differently. Through the form on this page, you may ask at no charge for an FCA-authorised adviser, willing to go through your estate, your pensions and your intended beneficiaries, to phone you back.

How to avoid SIPP inheritance tax: where the law stands

The change is enacted, not proposed. The Finance Act 2026 became law on 18 March 2026, and section 71 provides that the pension amendments "apply in relation to deaths, and (so far as relevant) to other transfers of value within the meaning of IHTA 1984, occurring on or after 6 April 2027." As of 29 October 2026 that date has not arrived, so the position depends on when the SIPP holder dies.

  • Death before 6 April 2027: HMRC's technical note says "the current rules will apply even if pension benefits are paid to their beneficiaries after this date." HMRC's policy paper explains that unused funds in discretionary schemes can currently pass to beneficiaries without an inheritance tax charge.
  • Death from 6 April 2027 onwards: HMRC counts most unused pension pots and death benefits in the value of the estate for inheritance tax.

The same change is set out in more detail on pension inheritance tax in the UK; this page is about what you can do with it. HMRC's policy paper says the change removes distortions that had led to pensions being used and marketed as a way to transfer wealth rather than to fund retirement.

What is left out, and what is exempt

Most of the legitimate room for manoeuvre sits in two lists that come from the Act and HMRC's guidance. Under section 66, a member is treated as owning "notional pension property" immediately before death, valued from the scheme's arrangements, and certain benefits are removed from that value as "excluded benefits".

Benefits the Act excludes

The Act removes a benefit only where the scheme may pay it solely as one or more of the following; money that could be paid out another way still counts.

  • A dependants' scheme pension. HMRC's technical note says this is paid after the member's death to a dependant, such as a surviving spouse or civil partner, children or, where scheme rules allow, someone financially dependent on the member, with further conditions in pension tax law. HMRC says one that meets the conditions is excluded whatever type of pension arrangement pays it. Whether a given scheme or provider can pay one is for that scheme to say.
  • A trivial commutation lump sum death benefit paid in place of a dependants' scheme pension, which ends the person's entitlement to that pension.
  • A dependants' or nominees' annuity purchased alongside the member's own lifetime annuity, a category the Act also lists.
  • Death in service benefits from a registered pension scheme. They must be payable because the member was in employment or other work of a particular description immediately before death, and not payable if the member was not; HMRC adds that payments from schemes linked to earlier jobs, where the person was a deferred member, do not meet the conditions. Check with the scheme before assuming a pension qualifies.

Exemptions that still apply

HMRC's note says payments to some beneficiaries are exempt, including transfers between spouses and civil partners who are long-term UK residents, and its policy paper adds registered charities. The exemptions are not considered when the notional pension property is valued: the whole pot is valued first, and personal representatives then claim the exemption for the part going to an exempt person. GOV.UK says leaving everything above the £325,000 threshold to a spouse, civil partner or charity normally means no inheritance tax is due, and if a married or civil-partnered person's estate is worth less than the threshold, the unused part can be added to their partner's threshold when they die.

What is in your control

None of the following is a recommendation; each is a lever the rules describe, with the conditions that come with it.

Nominating who receives the pension

Most registered pension schemes are discretionary: HMRC says their trustees decide who is paid and how much, after considering the potential beneficiaries and any expression of wishes the member has made. After April 2027 that discretion will "no longer determine whether pension assets fall within the scope of Inheritance Tax", so a nomination decides who benefits, not whether the pot is counted. It can still steer the money towards an exempt person such as a spouse. The forms are covered in how to fill in a pension nomination, and the terms in nominee versus beneficiary.

One caution applies to deaths before 6 April 2027. HMRC's manual says most nominations are simply letters of wishes, but where a member can nominate who receives a lump sum death benefit and the provider must comply, "the member has a general power", so that benefit can already count in the estate. Ask your provider which kind of form you have signed.

Spouse, civil partner and charity

Money passing to a spouse or civil partner who is a long-term UK resident is exempt, and so is money given to charity. GOV.UK also says an estate can pay inheritance tax at a reduced rate of 36% on some assets if 10% or more of the net value is left to charity in the will, and HMRC's technical note says death benefits paid from the pension to a qualifying charity will count towards the amount given to charity. What happens to the money when the survivor dies in turn is covered in what happens when the person who inherited a pension dies.

Gifts from other assets

GOV.UK sets out several gift rules for money and possessions you own. Gifts between spouses or civil partners are tax-free if they are married or in a civil partnership with you and live in the UK permanently, and each tax year you can give away £3,000 in total without it being added to your estate. Regular gifts out of income have no cash limit, provided you can afford them after your usual living costs and pay from regular monthly income. Larger gifts are tested by the seven-year rule: "No tax is due on any gifts you give if you live for 7 years after giving them", but if you die within seven years and tax is due on a gift, one made in the final three years is charged at 40%, while taper relief, which applies only where gifts over those seven years exceed the £325,000 threshold, scales the charge down for gifts made three to seven years before death.

Those rules are about gifts, not about taking money out of a pension to give away; how withdrawals and transfers fit with inheritance tax is covered on pensions, transfers and inheritance tax. An adviser can explain, free, whether any of these gift allowances fits your finances, and the route to one is this page's form.

Retirement choices that change what is left

Because some benefits are left out of the valuation and payments to exempt beneficiaries are not taxed, the type of benefit you buy or leave matters. A lifetime annuity with cover for a partner is one such choice, but it is first a decision about income for life, with its own trade-offs. Pension annuities and drawdown explain what each does. The government's estimate of how many estates will pay more tax is static and leaves out behaviour such as drawing down pension funds faster; that is HMRC's caveat, not a suggestion.

Over 75, and the income tax question

Age 75 matters for income tax on what a beneficiary receives, not for whether the pension is counted for inheritance tax. On GOV.UK's table for inherited pensions, an owner who dies before 75 usually leaves lump sums free of tax, unless one exceeds their lump sum and death benefit allowance or arrives over 2 years after the provider learns of the death; annuities and drawdown set up from 6 April 2015 are normally untaxed too. Once the owner had reached 75, the provider takes income tax off lump sums, annuities and drawdown, and a scheme pension is taxed whatever the age. Where inheritance tax is paid on the benefits, income tax is charged on what remains after it. The detail is on inherited pension tax.

SIPP, ISA or something else?

GOV.UK says ISA investments form part of your estate for inheritance tax. GOV.UK adds that no income tax or capital gains tax is due on an ISA after the holder's death until the ISA ends, while money from an inherited pension follows the age rules above. From April 2027 most unused SIPP funds join the estate too, so inheritance tax alone no longer separates them. Whatever the wrapper, investments can fall as well as rise, and you may get back less than you paid in. The basics of the product are on the SIPP guide, and contributions and inheritance tax covers money going in.

SIPP inheritance tax queries answered

Are SIPPs subject to inheritance tax?

It depends on the date of death. Under the Finance Act 2026, most unused pots and death benefits join the estate if the death is from 6 April 2027 onwards; before then, discretionary schemes generally sat outside it. Whether tax is actually due then turns on the estate's total value and on who receives it.

Is there a pension inheritance tax loophole?

The government's stated aim is to remove the advantage that made pensions a way to pass on wealth, so planning around the rules means using the exclusions and exemptions written into them, not looking for a gap. The sensible route is to check each idea against the Act and HMRC's guidance before relying on it.

Will naming a beneficiary stop the tax?

No. After April 2027 a nomination affects who receives the benefit, not whether it counts towards the estate; naming a spouse or civil partner can matter because transfers to them are exempt. Who you can name as a beneficiary explains the choices.

How do I avoid SIPP inheritance tax after 75?

Turning 75 does not change whether the SIPP is counted for inheritance tax; it changes the income tax position for those who inherit it. The levers are the same: exclusions, exemptions and what you do with other assets.

What tax is left if my SIPP goes to my husband, wife or civil partner?

Transfers between spouses and civil partners who are long-term UK residents are exempt from inheritance tax. Income tax on what they take out follows the age rules above.

Is an ISA better than a SIPP for inheritance tax?

An ISA already counts in the estate, and for deaths from 6 April 2027 most unused SIPP funds will too, so the answer rests on other things: access, income tax and who will inherit.

Putting a plan together

Nominations, a will, gifts and the choice of retirement income all touch each other, and the 2027 rules add one more layer. For a single review by an FCA-authorised adviser, send a few details via the enquiry form here and expect the free call-back. Free guidance on defined contribution options is also available from Pension Wise.