Do Pensions Count Towards Inheritance Tax?

In many cases, pension funds are not considered part of an individual's estate for inheritance tax purposes.

This is because pension benefits are usually held within a trust structure.

Instead of forming part of the estate, pension funds may be paid directly to nominated beneficiaries.

However, the exact treatment may depend on the pension scheme rules and the circumstances surrounding the individual's death.

When a pension holder dies, the remaining pension fund may be paid to beneficiaries.

This could include:

• Spouses or civil partners
• Children
• Other nominated beneficiaries

The form of the benefit may vary depending on the pension scheme.

Some beneficiaries may receive the remaining pension fund as a lump sum or through pension drawdown arrangements.

Our article on what happens to your pension when you die explains how pension death benefits may work in more detail.

Many pension providers allow individuals to nominate beneficiaries.

These nominations help pension trustees understand who should receive pension benefits after death.

Keeping beneficiary nominations up to date is often an important part of pension planning.

Because pensions may fall outside an estate for inheritance tax purposes, they can sometimes play an important role in estate planning.

Some individuals review how different assets are structured when planning how wealth may be passed to future generations.

Our article on passing down wealth: estate planning principles explained explains how different assets may be treated within estate planning.

Understanding inheritance tax rules is also important. Our guide on inheritance tax explained provides a broader overview of inheritance tax in the UK.