Planning for major change: relevant unused pension funds and pension death benefits will become subject to inheritance tax from 6 April 2027

From 6 April 2027, many unused pension funds and pension death benefits under registered pension schemes will be brought into a deceased person’s estate for inheritance tax (“IHT”) purposes. This marks a significant shift – for years, pensions have been a powerful estate planning tool because unused funds could often pass free of IHT.

On 11 May 2026, HM Revenue & Customs (“HMRC”) published a technical note explaining how the new regime under Finance Act 2026 is expected to work in practice, including a five-stage process for information sharing between personal representatives of an estate (“PRs”) and pension scheme administrators (“PSAs”). On 18 May 2026 HMRC published draft regulations and guidance notes. The detail is helpful, but the message is clear: from April 2027, estates with relevant pension wealth will be harder to administer, more time-sensitive and demand greater collaboration between all parties. The impact will be felt not only by beneficiaries, whose inheritance may be delayed and/or reduced by a larger than expected IHT bill, but also by PRs and PSAs, who face a fundamental overhaul of their existing processes in order to manage a new intricate compliance framework.

New rules

Under the new rules, PRs will be primarily responsible for reporting and paying the IHT attributable to pension assets, even though the pension assets are outside their control. In practice, that means PRs will need to identify the deceased’s pension arrangements quickly, contact each PSA, obtain valuations and beneficiary details for benefits within IHT, and factor those figures into the wider IHT calculation for the estate. All of that must be done against the usual short IHT payment deadline: six months from the end of the month of death, after which late payment interest starts to accrue (currently at 7.75%).

HMRC has said PRs must take “reasonable steps” to identify pension arrangements. A government backed “Pensions Dashboard” is in development to help individuals trace forgotten pension pots; however, this is unlikely to be available to PRs for many years if at all, leaving PRs grappling with often incomplete records and multiple historic workplace schemes – identification will be one of the most challenging parts of the new regime. 

Process overview

Once a PSA has received notification of death, a structured information-sharing process begins. PSAs will need to provide details of the relevant pension arrangements and values within 28 days of the PRs request, after which the PRs decide whether IHT is payable and attributable to the pension benefits. If so, the PRs or prospective PRs may issue a withholding notice requiring the PSA to retain up to 50% of the relevant pension benefits for up to 15 months. Timing will be crucial – if notice is given too late, the PSAs may already have made distributions leaving PRs short of funds. If payments are made while a valid withholding notice is in force, the PSA can become jointly and severally liable for the IHT attributable to those pension assets. The technical note also comments on the pensions IHT direct payment scheme, under which either PRs or pension beneficiaries can direct PSAs to pay the relevant IHT directly to HMRC. PRs will also need to report any adjustments to the IHT position and ultimately seek IHT clearance before they can be fully released from liability, including any additional IHT due on pensions discovered later unless PRS have been careless. It will be vital for PRs to carefully navigate these provisions to avoid unintentional delays and/or compliance issues, all while balancing the needs of both the beneficiaries of the estate and the pension beneficiaries, who may be different. 

Practical tips

These reforms affect not just tax planning and Will drafting, but the administration of estates and the operation of pension schemes. Although further regulations and guidance are expected before April 2027, there are sensible steps that can be taken now.

For private clients, the priority is to identify and review existing pension arrangements, keep records and nomination forms up to date and reconsider how pensions fit into wider succession planning given the new IHT exposure. Bringing pension funds into the IHT estate may affect eligibility for reliefs such as the residence nil rate band, which starts to taper once an estate exceeds £2 million. Professional bodies are continuing to discuss with HMRC how these reforms will affect the calculation of the reduced 36% IHT rate where at least 10% of a person’s net estate is left to a UK charity. Existing Wills and lifetime planning strategies should therefore be revisited.

For PRs, estate administration will become more demanding, with greater pressure to gather information quickly, coordinate with PSAs and manage the IHT position all within strict time limits.  Early enquiries, prompt contact with PSAs and clear communication with beneficiaries may reduce the risk of delay, shortfalls and disagreement.

For PSAs, existing processes may need significant revision to deal with tighter deadlines and more complex information-sharing requirements. The new regime will require systems for verifying PRs or prospective PRs, identifying benefits in scope, due exercise of discretions, providing timely valuations and beneficiary information, and dealing with withholding notices and direct payments to HMRC. Liquidity may be an issue for PSAs where schemes hold illiquid assets. This may be further compounded by the unavailability of IHT business and agricultural property reliefs for pension assets; loss on sale reliefs on the IHT payable should a pension decrease in value following death will not be applicable either.

All parties need to be aware of overlapping tax and administrative issues. There may be income tax as well as IHT pension consequences, valuation can be difficult for some pension assets, and delays in duly exercising discretionary death benefit powers may create additional complications. For many clients, the key question will be how the resulting IHT and administration burden should be managed – advance review and joined-up private client and pensions advice will be essential.

If you would like guidance on how the new rules may affect your estate planning, pension arrangements or the administration of an estate, please contact a member of our private client or pensions team.

Related articles

• Inheritance Tax on Pension death benefits – understanding the new IHT regime; March 2026
• Legislation blockbusters – an overview; May 2026
• Pensions and inheritance tax: Uneasy bedfellows?; December 2024
• Inheritance Tax and Pensions; October 2025
• Tax roundup; February 2026

This article is for general information purposes only and does not constitute legal advice or a comprehensive statement of the law. Specific legal advice should always be sought in relation to individual circumstances.

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   • Caroline Miller

   • Partner
   • Private Client

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   • Justin McGilloway

   • Partner
   • Pensions & Employee Benefits

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   • Paul Ashcroft

   • Partner
   • Pensions & Employee Benefits

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