Clive Weber
- Consultant
- Pensions & Employee Benefits
Inheritance Tax And Certain Pension Benefits
First and foremost, Inheritance Tax (IHT) – where are we now?
The proposed new IHT legislation in Finance (No 2) Bill published on 4 December 2025 is making its way in Parliament. It is due to apply for deaths on or after 6 April 2027.
The barebones of the IHT charge on unused pension pots and certain death benefits remain the same as HMRC proposed earlier last year. For a refresher, click here for our article in Part 3 of October 2025 Pensions Compass and here for our earlier article in Part 4 of December 2024 Pensions Compass.
However, the Finance Bill provisions make life for the deceased members’ personal representatives (PRs) (such as the executors of the deceased member’s Will) easier by including the following additional provisions:
- PRs may issue a withholding notice to the pension scheme trustees requiring the scheme trustees to withhold (not distribute) up to 50% of the scheme benefits for up to 15 months from the date of the member’s death; and
- PRs may give a notice to pay requiring scheme trustees to pay to HMRC the IHT due on the relevant pension death benefits (in addition to the pension beneficiaries’ power to issue such a notice to pay to the scheme trustees).
The Finance Bill clauses will result in a complex triangular framework involving PRs, scheme trustees and scheme death benefit beneficiaries. The content of the various notices and information flowing between these parties as well as to HMRC are to be set out in Regulations. Draft Regulations are likely to be included as part of Legislation Day in July 2026, with the Regulations being finalised and made in Autumn 2026 ready for 6 April 2027. There will also in due course be HMRC Guidance and amendments to HMRC’s Pension Tax Manual.
HEALTH WARNING – Readers can be forgiven for asking whether this new world of IHT and Pensions will work smoothly, or whether there will be holes not covering various issues in best Bermuda Triangle traditions. Only time will tell as the framework takes shape.
The stakes are high, particularly for heirs of relevant pension benefits. IHT paid late on the deceased member’s free estate and on IHT taxable pension benefits will incur interest at currently 7.75% In this context “late” means unpaid after 6 months from the end of the month of the member’s death.
Our highly experienced Pensions and Private Client Teams are available to help with any queries readers may have.
Other Tax Changes
For noting:
Employer and Employee NICS on sacrificed employer contributions exceeding £2000 – the NI Bill is in Parliament. The detail will be in Regulations yet to be published. Effective date of this new “tax” charge not until 6 April 2029.
Taxation of Surplus refunds (DB schemes) – Government is due to clarify how the tax charges are to apply both on surplus paid to employers and to one – off surplus payments to members who have attained NMPA (Normal Minimum Pension Age). NMPA is presently age 55 but rises to age 57 on 6 April 2028.
Registration of tax advisers – provisions included in Finance (No 2) Bill.
Further Regulations re Enhanced Protection – expected in the next few months.
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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