Inherited pension tax turns on the owner's age at death: under 75 and paid within two years, usually no income tax; at 75 or over, taxed as income.

If you have been left a pension, the tax question can wait a little while you deal with everything else, though not indefinitely, because one rule runs on a two-year clock. GOV.UK says payments from someone else’s pension pot after they die may be taxable. This page sets out the general income tax rules for the person who receives the money, with the allowance figure GOV.UK gave in October 2026; it does not work out anybody's tax.

Pension Wise, from MoneyHelper, is free, impartial guidance backed by the government, open to anyone aged 50 or over with a UK-based defined contribution pension and to younger people who have inherited someone else's pension. If the type of payment and your own income leave you unsure what you would owe, it costs nothing to describe the inherited pot in the enquiry form on this page. Working from what you write, an FCA-authorised adviser can set what you might owe against your other income.

The short answer: age at death, kind of payment and timing

Whether you pay tax, GOV.UK says, usually depends on the type of payment, the type of pension pot and the age of the pot's owner when they died (its table is reproduced in the pension death benefits guide). In practice that means three questions:

  • How old was the person when they died? HMRC draws the line at 75. Under it, many inherited payments carry no income tax; at 75 or over, they are generally taxable.
  • What form does the money take? A lump sum, drawdown income, an annuity and a pension paid by a scheme each have their own rules, covered below.
  • How long did it take? For a death before 75, tax-free treatment depends on a payment being made, or money being moved into your drawdown fund, within two years of the scheme knowing of the death.

Where tax is due, it is added to your other income for the year and charged at your marginal rate, the rate on the top slice of your income. Inheritance tax is a separate charge on the estate, covered briefly near the end.

Lump sum death benefits and the lump sum and death benefit allowance

For a lump sum from money the person had not yet drawn, HMRC's manual says that where the member was under 75 and the sum is paid inside the two years, it is "tax free unless the payment exceeds the deceased member's available lump sum and death benefits allowance". It is taxable if the member was 75 or older, or if payment came outside the two years, and in that late case GOV.UK says income tax falls on the entire payment, not just a part of it. The manual applies the same tests to a lump sum from a defined benefit scheme.

How much can be paid tax-free

GOV.UK gives the lump sum and death benefit allowance as up to £1,073,100 for people and their beneficiaries in certain circumstances, and counts certain lump sum death benefits paid to beneficiaries towards it (checked on 18 October 2026). Someone with a protected allowance may have more. HMRC's manual adds how the allowance works for a death:

  • The lump sum is tested against the deceased person's allowance, not the recipient's.
  • Lump sums the person took in their lifetime, and other lump sum death benefits already paid, are deducted to find what is left.
  • Any excess is taxed at the recipient's marginal rate.

GOV.UK suggests asking the provider how much of the allowance has been used. For a death before 75, it says the person dealing with the estate must tell HMRC if lump sums go over the allowance, and that HMRC will send the recipient "a notice telling you what you owe and how to pay".

Lump sums taxed differently

The PAYE Manual says trivial commutation lump sum death benefits, and similar small pot lump sums, "are always taxable at the recipient’s marginal rate of income tax, regardless of the age of the member when they died". Where a taxable lump sum goes to someone who is not an individual in the tax rules' sense, such as a company or a trustee, the Pensions Tax Manual says a special charge of 45% applies, normally deducted by the payer. Pension beneficiary as a trust covers that route.

How the tax is collected: PAYE, emergency tax codes and reclaiming

HMRC's manual says taxable beneficiary drawdown is taxed at the beneficiary's marginal rate in the tax year it accrues, with the payer deducting income tax under PAYE; annuities, dependants' scheme pensions and taxable lump sums paid to individuals are collected the same way.

Emergency tax codes

An inherited pension is often a new income source. HMRC's PAYE Manual, its internal guidance for staff, says that unless the payer already holds a suitable code, such as one from a P45 dated in the current year, the scheme administrator uses an emergency tax code on a "month 1" basis for the first payment, and HMRC then issues a code for later ones. GOV.UK warns that a large withdrawal may be taxed at a higher rate and that you may owe extra tax at the end of the tax year.

Claiming tax back

HMRC's manual says that, after the payment, the beneficiary can contact HMRC to claim a refund during the tax year, using:

  • P50Z(DB): a one-off lump sum, where you have no other PAYE or pension income, or only the State Pension.
  • P53Z(DB): a one-off lump sum, where you have other jobs or pensions.
  • P55(DB): drawdown payments that are not a one-off.

For a one-off lump sum the payer issues a P45 to support the claim. If nobody claims, the manual says HMRC will review the position automatically after the end of the tax year and issue a calculation showing any over or underpayment; if you file a Self Assessment return, GOV.UK says the refund follows that. How claims work in practice is in the pension tax refund guide.

If you live in Scotland, GOV.UK says Scottish Income Tax applies to pension income, so Scottish rates apply: see GOV.UK's Scottish Income Tax page.

Beneficiary drawdown or taking it all out

Where the scheme allows it, a beneficiary can move their share into a flexi-access drawdown fund in their own name instead of taking a lump sum. HMRC's manual says they can choose to take nothing in a year, regular or irregular payments, or "their whole flexi-access drawdown fund as a single payment", subject to scheme rules. It adds that many schemes do not offer this option, and a defined benefit arrangement cannot pay drawdown at all, so ask the provider what it offers. The mechanics are in the beneficiary drawdown guide.

HMRC's Pensions Tax Manual puts the age test for this income in these words: "Dependants’ or nominees’ income withdrawal is taxable if it is paid in respect of a member who was aged 75 or older when they died." Below 75 the manual treats it as not taxable, subject to the timing condition below. GOV.UK's table adds an exception for older arrangements: where the money comes from a capped drawdown fund, or a drawdown fund the owner first drew on before 6 April 2015, the provider deducts income tax even though the owner died under 75. It is worth asking which kind of fund it is. If the person you inherit from had themselves inherited the fund (a "successor" case), the age test follows that earlier beneficiary instead; see what happens when the beneficiary dies.

The two-year window for designating

To start beneficiary drawdown you must "designate" money in the pot as available to pay you a drawdown pension. Telling the scheme is not enough: the manual says the scheme has to be capable of paying income withdrawal for the designation to take effect. Where the money designated includes funds the person had not yet taken into drawdown themselves, income from it is taxable if those funds "were not designated within two years of the earlier of the day the scheme administrator first knew of the member’s death, or the day they could first reasonably have been expected to know of it." The manual calls this the "relevant two-year period". Each scheme sets its own designation process, so it helps to ask the provider early what it needs.

What the tax rules make you weigh

  • Lump or spread. Where the income is taxable, a pot taken at once is added to that year's income, and GOV.UK warns this may mean a higher rate. Drawdown can spread it over several tax years.
  • Investment risk. Money left in drawdown stays in the markets; the value of investments can go down as well as up, and what you eventually draw may be less than the fund held at the date of death.
  • Passing it on again. According to GOV.UK, you can name who should receive whatever you leave unused of an inherited defined contribution pot, as long as the money sits in flexi-access drawdown when you die.

Which carries most weight depends on your other income, your tax band and whether you need the money soon. Weighing a lump sum against drawdown with the pot's tax history in view is something the short enquiry form on this page, free to send, can start with an FCA-authorised adviser.

Inherited annuities

An annuity that carries on after a death, such as a joint-life annuity, is taxed under HMRC's rules for beneficiary annuities; what an annuity can pay at all is in the annuity death benefit guide.

  • The age test. Whatever the type, HMRC says a beneficiary's annuity is taxable if the person who died was 75 or older, or died before 3 December 2014 at any age. The recipient pays at their marginal rate and the insurer deducts it under PAYE.
  • An annuity bought after the death with money not yet drawn is taxable if the beneficiary did not become entitled to it within the two-year period.

Defined benefit pensions: dependants' pensions and lump sums

What a defined benefit scheme usually pays after a death is a pension to a dependant, and sometimes a lump sum. GOV.UK says such a pension can usually go only to a dependant, such as a spouse, civil partner or child under 23, and that paying someone else, if the scheme's rules allow, is taxed at up to 55% as an unauthorised payment.

HMRC's tax definition of a dependant covers a spouse or civil partner at the date of death and a child under 23, and can include someone in a "financial relationship with the member which was one of mutual dependence"; whether an unmarried partner qualifies is for the scheme to decide.

  • Tax at any age. The recipient is liable for income tax on a dependants' scheme pension as pension income, and the payer deducts it under PAYE. GOV.UK's table marks a scheme-paid pension as taxed at any age of death, so the under-75 rule does not help here.
  • No tax-free lump sum. HMRC says a dependants' scheme pension cannot give rise to a right to a tax-free lump sum.

A defined benefit lump sum follows the age, two-year and allowance tests above; the tax rules do not cap the amount, though the scheme's rules may. For one scheme's terms see the Local Government Pension Scheme guide, and the final salary pension guide for the basics.

The 2027 inheritance tax change, in brief

Everything above is income tax. Inheritance tax on unused pensions is already law but not yet in effect: the Finance Act 2026 received Royal Assent on 18 March 2026, and its section 71 starts the change for deaths on or after 6 April 2027. From then, HMRC's technical note says, most unused pension funds and death benefits count as part of the estate, with dependants' scheme pensions and qualifying death in service benefits left out. One point matters to a beneficiary in particular: where inheritance tax has been paid on a death benefit, HMRC says the share of it matching that tax, plus any interest, is not counted as your taxable income. The detail is in pensions and inheritance tax.

Inherited pension tax: questions people ask

Is a pension death grant taxable?

A lump sum from a defined benefit scheme is, in tax terms, a defined benefits lump sum death benefit, and HMRC applies the age, two-year and allowance tests above. What a scheme calls it, and how much it pays, is for its rules.

Can I take a tax-free lump sum from an inherited pension?

Sometimes. Where the person died under 75 and a lump sum is paid within two years, it is tax-free up to the deceased's available allowance. Tax-free cash taken from your own pension is a different question.

Can a spouse inherit a pension tax-free?

The income tax tests above apply to a spouse as to anyone else. The inheritance tax spouse exemption is covered in the inheritance tax guide.

Do I pay tax on an inherited SIPP?

A SIPP is a defined contribution pension, so the lump sum, drawdown and annuity rules above apply. See the SIPP guide.

When can I access an inherited pension?

Timing is set by the provider and the scheme's rules, and the tax rules add the two-year point. Your own age is not a bar: HMRC says there is no lower or upper age limit for beneficiary drawdown, so you need not have reached pension age yourself.

Your next step

The provider can tell you the type of payment and how much allowance was used. To have an inherited pot's tax looked at beside your own finances, describe it in the enquiry form on this page. An FCA-authorised adviser takes over from there.

Sources, accessed 18 and 19 October 2026: GOV.UK, Tax on a private pension you inherit, Lump sum allowance, How your pension is taxed and Income Tax in Scotland; HMRC Pensions Tax Manual, PTM072430, PTM072410, PTM073010, PTM073200, PTM073100, PTM072210, PTM072110 and PTM071200; HMRC PAYE Manual, PAYE94058 and PAYE76170; Finance Act 2026, section 71; HMRC, Technical note: Inheritance Tax on pensions (updated 29 May 2026); MoneyHelper, Pension Wise (read via the Internet Archive).