Are SIPPs inheritance tax free? Setting the record straight

28 April 2026

Nearly a third (32%) of UK adults say they do not know how Self-Invested Personal Pensions (SIPPs) are treated for inheritance tax (often abbreviated to ‘IHT’) while 15% believe they are treated like other assets and subject to inheritance tax . Almost one in ten (8%) think SIPPs are always completely tax-free, and 7% assume beneficiaries receive the full amount without any tax implications.

The confusion is not unjustified given upcoming tax changes and with so many misconceptions, it is important to clarify how SIPPs are treated on death, and how careful planning can help protect your wealth.

At Killik & Co, we believe understanding these rules is key to making informed financial decisions.

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Are SIPPs subject to inheritance tax?

Currently, any remaining funds in your SIPP can usually be passed on to your loved ones free from inheritance tax, as pensions typically sit outside your estate, unlike assets such as property, savings or investments.

SIPPs are generally distributed using an ‘expression of wishes’ form rather than your will. While the pension provider has discretion over how benefits are paid, they will generally follow your stated wishes, although this is not guaranteed.

This structure is what allows SIPPs to remain outside your estate, making them a tax-efficient way to pass on wealth. However, certain older-style pension arrangements have benefits paid directly to the estate on death, rather than at the discretion of the pension provider, and so they form part of the estate for inheritance tax purposes already.

Tax Treatment

The tax treatment depends on the individual circumstances of each client and may be subject to change in the future.

What is changing in April 2027?

SIPPs have long been a tax-efficient way to save for retirement while also protecting against inheritance tax.

From 6th April 2027, unused pension funds will become subject to inheritance tax, as they will be included in an individual’s estate. This may have a significant impact. Currently, estates benefit from a £325,000 nil-rate band, with inheritance tax of up to 40% applied to amounts above this threshold. Bringing pensions into scope could increase the overall tax liability and reduce the amount passed on to beneficiaries.

While details may evolve, these changes reinforce the importance of reviewing your plans sooner rather than later, and it is increasingly important to consider how best to utilise a SIPP. It’s still a very effective savings vehicle, but it will need to be managed efficiently as part of a wider inheritance tax planning strategy to ensure you don’t leave a pot subject to inheritance tax.

What is the growing risk of double taxation on SIPPs after age 75?

These changes mean SIPPs could face double taxation on death after the age of 75. Loved ones already pay income tax at their marginal rate on withdrawals, but funds may now also be subject to 40% inheritance tax first, and then the remainder will still be hit with income tax as it’s paid out. For higher-rate taxpayers, this could result in total tax charges of 67% to over 87%, significantly reducing the amount passed on.

As a result, relying on a SIPP purely for wealth transfer is becoming less effective. Strategies such as carefully planned withdrawals and gradual gifting may help mitigate this risk but should always be considered as part of a broader, long-term financial plan with professional advice.

How can I reduce inheritance tax exposure on a SIPP?

There are several ways to manage a potential inheritance tax bill on a SIPP, particularly in light of evolving rules. For some, drawing income earlier can help reduce the overall value of the pension and limit future tax exposure. However, this approach must be carefully planned to avoid triggering unnecessary income tax or depleting funds too quickly, which may leave you short later in life when care or additional support may be needed.

Gradual gifting can also form part of an effective strategy. Using annual allowances - currently £3,000 per individual, or £6,000 for couples, with the ability to carry forward unused allowances - allows wealth to be passed on steadily without incurring inheritance tax. This can help reduce the size of your taxable estate over time.

For many, the role of a SIPP is shifting away from being a primary wealth transfer vehicle towards funding retirement first. This may involve drawing down the pension more deliberately while preserving other, more tax-efficient assets for beneficiaries.

Given the complexity and pace of change in this area, any approach should be tailored to your personal circumstances and reviewed regularly as legislation evolves.

Considerations

SIPPs have been a highly tax-efficient way to pass on wealth, but they are not automatically free from tax. As the data shows, many people misunderstand how they work, and upcoming rule changes will add further complexity.

The key is not to rely on assumptions, but to plan carefully. By understanding the rules and seeking professional guidance where appropriate, you can help ensure your pension is passed on as efficiently as possible.

What is Killik & Co’s SIPP offering?

At Killik & Co, we support clients at every stage of their pension journey, from building wealth to passing it on. Our award-winning SIPP combines flexibility with expert guidance.

Clients can choose an advised service, where you retain control with professional input, or a managed service, where our investment specialists make decisions on your behalf. With access to over 30 global markets, and no charge to open or transfer, our approach is designed to be both accessible and comprehensive.

Working with a dedicated Investment Manager, we help clients make the most of their annual allowance and plan for retirement income, while also considering how best to pass on wealth to future generations.

The research was conducted by Censuswide, among a sample of 2000 UK respondents (nat rep 18+). The data was collected between 18.03.2026 - 20.03.2026. Censuswide is a member of the Market Research Society (MRS) and the British Polling Council (BPC), and a signatory of the Global Data Quality Pledge.

Capital at risk

Past performance is not a reliable indicator of future results. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.

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