Should you put an inheritance into your pension?

Should you put an inheritance into your pension? You can, and tax relief may apply up to set limits, but the money is then normally locked in until 55 or later.

An inheritance arrives as cash, and paying it into a pension is a one-off choice that is hard to undo. This guide sets out what the pension limits allow, what you give up in access and tax, and how the same money can affect benefits while it sits in a bank account. If you would like a second view, the inherited money, your pensions, tax and any benefits can be looked at together with an FCA-authorised adviser, free, by phone; that call follows the form on this page.

Does an inheritance affect your pension?

Inheritance and pension are two separate things: the money you inherit does not go into a pension unless you choose to pay it in. What an inheritance can change is the tax, the allowances and the benefits around the decision.

GOV.UK describes Inheritance Tax as "a tax on the estate (the property, money and possessions) of someone who’s died". The charge falls on the estate of the person who died, not on your own pension. How a pension itself is treated for Inheritance Tax is covered in pension inheritance tax in the UK.

Inheriting someone else’s pension pot is a different case. GOV.UK says "You may have to pay tax on payments you get from someone else’s pension pot after they die", and the position depends on the type of pension and the age of the person who died. That is explained in how pension death benefits work.

Can you pay an inheritance into your pension?

You can pay into a pension if the scheme takes lump sums, but tax relief is limited by your earnings and your allowance, not by the size of the inheritance. GOV.UK says you usually pay tax if savings in your pension pots go above the earnings limit or the annual allowance, and a lower relief limit applies if you pay no Income Tax:

• Earnings. "100% of your earnings in a year - this is the limit on tax relief you get". An inheritance is not earnings, so a large sum paid in at once can pass this limit, and HMRC can ask you to pay back relief above it.
• No earnings. Someone who pays no Income Tax can have 20% relief claimed by the provider on payments of up to 80% of earnings or, with no earnings in the year, "£2,880".
• Annual allowance. £60,000 in the 2026/27 tax year, according to HM Revenue & Customs on GOV.UK, counting "the total amount paid in to a defined contribution scheme in a tax year by you or anyone else (for example, your employer)". Allowance you did not use in the previous 3 tax years might also be carried over.

Higher-rate taxpayers usually claim the extra relief through Self Assessment, and Scottish rates differ; how pension tax relief works covers that. Paying one lump sum has its own page: tax relief on a lump sum paid into a pension, and SIPPs are one common home for it.

Your scheme’s handling of a large single payment is something the adviser who calls back can explain, free, once you use the form here.

What you give up by paying an inheritance into a pension

Cash can be spent tomorrow. A pension generally cannot, and four things follow.

Access age. HMRC’s Pensions Tax Manual says "From 6 April 2028 the normal minimum pension age will increase to age 57", up from 55. People with a protected pension age are an exception, and the rule on taking money earlier is in when you can start taking your pension.

Tax on the way out. GOV.UK states: "You pay tax when you take money out of a pension". How much can be taken tax-free is a separate limit, and pension drawdown explains the common ways of taking it.

A lower allowance later. Taking money flexibly can cut the amount you can pay in afterwards. GOV.UK says that flexible access can mean a lower annual allowance, called the money purchase annual allowance.

Risk. Money in a pension is usually invested, so its value can fall as well as rise and you may get back less than you paid in.

Inheritance Tax on your own pension is changing as well. MoneyHelper says "From April 2027, any money left in your pension or in death benefits might be counted when calculating Inheritance Tax", and section 71 of the Finance Act 2026 brings this in where a death happens on or after 6 April 2027. A pension should not be assumed to keep money outside your estate; how to avoid SIPP inheritance tax sets out what you can control.

Whether tax relief is worth the loss of access turns on your age, income, other pots and plans; yours can be weighed with an FCA-authorised adviser, free, after filling the form on this page.

How an inheritance sitting in cash can affect benefits

Means-tested benefits look at savings, and an inheritance counts. For Pension Credit, GOV.UK says "If you have £10,000 or less in savings and investments this will not affect your Pension Credit", while above that "every £500 over £10,000 counts as £1 income a week". DWP’s April 2026 Pension Credit guide for advisers lists inheritance among the sources of capital it counts.

For Universal Credit, a single claimant or couple "must usually have no more than £16,000 in money, savings and investments", and "If you have below £6,000 it will not affect your award". Claimants "must tell us about any change in your money, savings and investments or their value", which DWP says may include inheritance payments.

For Pension Credit, pension pots are treated differently. The same DWP guide says that if no annuity or other pension product is bought and a pot is left untouched "the pot will be disregarded as capital", though notional income is counted as if an annuity had been bought. Money taken out as ad hoc lump sums counts as capital, and if it is then spent, transferred or given away, "the usual rules on deprivation of capital will apply".

The guide also says DWP may treat someone as having capital they no longer hold if they got rid of it to get Pension Credit or more of it; its example is money given to a grandchild. How the State Pension fits alongside is in the UK State Pension explained.

Practical questions on paying in an inheritance

Can I put an inheritance into a pension if I have stopped working?

Yes if your scheme accepts it, but the relief limit is based on earnings. With no earnings in the year, GOV.UK gives £2,880 as the amount a provider can claim 20% relief on. Paying in more may not attract relief.

Can I take the money back out if I change my mind?

Not normally before the minimum pension age, which HMRC’s manual puts at 55 until it becomes 57 on 6 April 2028. Once you can take it, tax applies to what you take out, so the choice is worth making carefully.

Is an ISA a better home for an inheritance than a pension?

The two work differently, and pension or ISA compares them. For Pension Credit, DWP counts ISAs as capital; an untouched pension pot is disregarded as capital, but notional income from it is counted.

Must a benefits claimant report an inheritance?

If you claim Universal Credit, GOV.UK says to report changes in your money, savings and investments as they happen, and it names inheritance payments. For other benefits, the benefit’s own rules apply.

Is there free, impartial pension guidance?

A Pension Wise session from MoneyHelper costs nothing and covers how a defined contribution pot can be drawn on; MoneyHelper describes it as impartial and government-backed. You can book from 50 if your pot is UK-based. What Pension Wise is explains how to book, and how much pension you need helps with the bigger picture.

Weighing up an inheritance and a pension

Some questions come before the pension: what the money may be needed for in the next few years, whether any earnings sit behind a contribution, what a pot would do to benefits, and how long it is until the money could be reached. A pension may suit someone who will not need the cash soon and has earnings to match; it may not suit someone who might need it.

Still unsure where the inheritance should go? An FCA-authorised adviser will talk the choices through by phone, free, when the short form on this page comes in.