Heirs and who pays
Pensions inherited in Scotland: inheritance tax, then Scottish income tax
Inheritance tax has no Scottish version. Income tax does, and an heir who pays it can lose a larger share of an inherited pension than a brother or sister in England.
Inheritance tax is a UK tax with the same bands everywhere: an estate administered in Edinburgh has the same nil-rate band of £325,000, the same residence band of up to £175,000 and the same rate of 40 % as one in Cardiff, and from 6 April 2027 it includes unused pension funds in Scotland too. The difference comes afterwards. When the member died at 75 or over, the heirs pay income tax on what they draw from the inherited pot, and an heir who is a Scottish taxpayer pays at the Scottish rates for 2026/27, which run from 19 % to 48 %. The inheritance tax borne on the pension is deducted first. In our example two children each inherit a £100,000 share of a parent's pot; each earns £50,000 and draws the share in one tax year. The child taxed in Scotland keeps £43,405 of the share; the child taxed in England keeps £47,497.
Inheritance tax, then income tax: the combined rate
You keep
£31,500
| Inheritance tax | £40,000 |
| Income tax on the rest | £28,500 |
| Combined tax rate | 68.5 % |
| Your marginal rate now | 42 % |
Income tax is charged on the pension after the inheritance tax borne on it (ITEPA s.567B).
Law read and sums checked by Radif Partners · Editorial policy · How the tax is worked out
One inheritance tax for the whole UK
Scotland sets its own income tax rates and bands on earnings and pensions, published each year for Scottish taxpayers, but inheritance tax is a single UK tax. A Scottish estate is valued, reported and taxed under the Inheritance Tax Act 1984 with the bands set out on GOV.UK, and the freeze of those bands until 5 April 2031 applies there as it does in England. The same is true of the pension rules: for a death on or after 6 April 2027, the unused funds of a Scottish member's personal pension, SIPP or workplace pot are added to the estate, and the spouse, civil partner and charity exemptions apply to the benefits in the same way.
So a family in Aberdeen and a family in Bristol with identical estates pay identical inheritance tax. Where they part company is in what each child keeps once the inherited pension is turned into cash.
Scottish income tax on a pot inherited after 75
When the member dies before 75, most lump sums and drawdown income paid to the heirs are free of income tax within the member's lump sum and death benefit allowance, and Scotland is no different. When the member dies at 75 or later, GOV.UK explains that every lump sum, drawdown payment or annuity payment is taxed as the beneficiary's income, through PAYE, at the beneficiary's marginal rate. For a Scottish taxpayer, that marginal rate is set by the six Scottish bands rather than the three that apply in the rest of the UK.
The Finance Act 2026 adds a protection that applies across the UK. Under the new section 567B of the Income Tax (Earnings and Pensions) Act 2003, the inheritance tax borne on a death benefit is deducted from the taxable pension income, so income tax is charged only on what is left. The table shows the combined effect on a pound of pension that bears inheritance tax at the full 40 %, for an heir whose other income puts that pound in each Scottish band.
| Scottish band | Total income, 2026/27 | Income tax rate | With inheritance tax first |
|---|---|---|---|
| Starter | £12,571 to £16,537 | 19 % | 51.4 % |
| Basic | £16,538 to £29,526 | 20 % | 52.0 % |
| Intermediate | £29,527 to £43,662 | 21 % | 52.6 % |
| Higher | £43,663 to £75,000 | 42 % | 65.2 % |
| Advanced | £75,001 to £137,710 | 45 % | 67.0 % |
| Top | above £137,710 | 48 % | 68.8 % |
For comparison, the higher rate in England, Wales and Northern Ireland is 40 % and the additional rate 45 %, giving combined rates of 64.0 % and 67.0 %. The gap is widest in the middle: a Scottish heir with £50,000 of other income already pays 42 % on the next pound, while an heir with the same income in England pays 20 %. Between £100,000 and the top of the advanced band, the loss of the Personal Allowance pushes the Scottish marginal rate to 67.5 %.
Two children, one pot, two tax systems
A widowed parent dies at 80, after 6 April 2027, leaving a £400,000 home and £100,000 of savings to two children equally, with a £200,000 pot nominated half to each. The estate pays £80,000 in all, of which £22,857 is attributable to the pension, because the tax is spread over everything chargeable at the estate's average rate. Each child bears £11,429 of it on a £100,000 share. One child lives and pays tax in Scotland, the other in England; both earn £50,000.
| Heir | Inheritance tax on the share | Income tax | Keeps from the share | Total tax rate |
|---|---|---|---|---|
| Scottish taxpayer, all in one year | £11,429 | £45,167 | £43,405 | 56.6 % |
| Taxpayer in England, all in one year | £11,429 | £41,074 | £47,497 | 52.5 % |
| Scottish taxpayer, over 5 years | £11,429 | £37,200 | £51,371 | 48.6 % |
| Taxpayer in England, over 5 years | £11,429 | £35,159 | £53,413 | 46.6 % |
Drawn in a single tax year, the Scottish child pays £4,092 more income tax than the English one on the same share. Spreading withdrawals over five years narrows the bill for both, since less of each year's slice reaches the higher bands, but the Scottish heir still pays more. The calculator above uses the Scottish rates by default; change the income, the inheritance tax rate on the share or the number of years to see your own figures, or switch to the rest of the UK.
Starter and intermediate bands
Not every Scottish heir pays more. The starter rate of 19 % sits below the UK basic rate, so an heir with little other income who draws a small inherited pot can pay slightly less income tax than in England on the first slice. The intermediate band at 21 % is one point above basic rate. The real difference opens at the Scottish higher rate of 42 %, which starts at a lower income than the higher rate elsewhere, and in the advanced and top bands above it.
When Scottish rates apply before 75
A death before 75 does not always keep income tax away. Lump sums above the member's remaining lump sum and death benefit allowance of £1,073,100, less any tax-free cash taken in life, are taxed as the heir's income, and from April 2027 that test is made on the amount net of inheritance tax. A lump sum paid more than 2 years after the provider learns of the death is taxable in full, whatever the member's age. In both cases a Scottish taxpayer pays at the Scottish bands. And where the whole estate sits within its bands, so no inheritance tax is due, the pension pound simply bears the heir's marginal rate, which is the third column of the table rather than the fourth.
Confirmation instead of probate
Executors in Scotland apply for confirmation rather than a grant of probate, but the inheritance tax steps are shared. GOV.UK’s payment guidance says the tax is due within 6 months of the end of the month of death, with interest after that, and that a payment is usually needed before confirmation can be obtained. From April 2027 the executors are also liable for the tax on the pension, alongside the beneficiaries, and can use the new withholding and payment notices that require the scheme administrator to hold back benefits or pay the tax straight from the pot. The guide on who pays explains both.
Pensions that stay outside in Scotland too
The exclusions in section 150A are UK-wide. A dependants' scheme pension from a defined benefit scheme, a joint life annuity bought with the member's own annuity, and a death in service lump sum from the job the member held at death never enter the estate. A dependants' scheme pension is still taxed as the dependant's income, and for a Scottish taxpayer that means the Scottish bands. The page on pensions inherited after 75 sets out the same calculation with the rates for England, Wales and Northern Ireland.
The figures here are examples computed with the 2026/27 rates; a pot drawn in later tax years is taxed at the Scottish rates and bands of those years. Whether you are a Scottish taxpayer, and how to time withdrawals from an inherited pot, are questions for a regulated adviser or the executors handling the estate.