Pension Inheritance Tax From 2027 - What Executors and Beneficiaries Need to Know
This article is for general information only and does not constitute personal financial, pension, investment, tax or legal advice. The rules discussed apply to deaths on or after 6 April 2027 and their effect will depend on the pension arrangement, beneficiaries and wider estate. The core reform is already legislated, while HMRC will continue publishing supporting guidance ahead of implementation. Professional tax, legal or financial advice may be appropriate when administering an estate.
Under the rules applying to deaths on or after 6 April 2027, most unused pension funds and pension death benefits are expected to be brought within the value of a deceased person's estate for Inheritance Tax purposes, subject to the detailed statutory rules and exclusions.
The reform changes both the tax treatment of pension wealth and the information that may need to pass between pension schemes, personal representatives and beneficiaries.
Personal representatives may need to obtain pension values, include relevant benefits when establishing the estate's IHT position and coordinate with pension schemes where tax is due. Beneficiaries may also find that part of a pension death benefit is temporarily withheld or used to meet pension-related IHT before the balance becomes available.
What changes on 6 April 2027?
The core reform is already legislated through the Finance Act 2026.
For deaths on or after 6 April 2027, most unused pension funds and pension death benefits will form part of the value considered for Inheritance Tax. If someone dies before that date, the previous rules apply even if pension benefits are paid later.
HMRC's technical guidance on Inheritance Tax and pensions explains the framework for the new rules.
The change does not mean that every pension death benefit will automatically face a 40% tax charge.
The final position will depend on factors including:
- the pension benefits within scope
- the value of the wider estate
- available nil-rate bands
- exemptions and reliefs
- who receives the pension benefits
- the type of death benefit involved
Certain benefits may remain outside the new rules where the relevant statutory conditions are met. Death-in-service benefits payable from registered pension schemes are excluded. Certain dependants' scheme pensions from defined benefit or collective money purchase arrangements can also fall outside the new rules where the statutory conditions are met.
For the wider tax rules rather than the administration process, our guide to pensions and Inheritance Tax explains how pension death benefits are treated before and after April 2027.
Why executors will need pension information
From April 2027, personal representatives will generally be responsible for reporting and paying any IHT due on pension benefits that fall within the new rules.
An executor named in a valid Will will commonly act as a personal representative. Different arrangements can apply where someone dies without a Will or where a named executor cannot act.
Pensions may therefore need to be identified alongside property, savings, investments and other estate assets.
The process may involve:
- Identifying the deceased's pension arrangements
- Contacting the relevant pension scheme administrators
- Obtaining pension values and required information
- Combining those figures with the wider estate
- Establishing whether an IHT account and payment are required
- Coordinating with schemes and beneficiaries where pension-related tax is due
Not every estate will require every stage. The administrative work will depend on the estate, the pension arrangements and whether IHT is payable.
How quickly must pension schemes provide information?
HMRC's latest technical note on the 2027 pension IHT process sets out information-sharing duties between pension schemes, personal representatives and beneficiaries.
Once the pension scheme has received a valid request and the required evidence of identity and authority to act, the applicable statutory response period will generally be 28 days for the basic information available to the scheme, subject to the detailed rules on beneficiary information and any updated requirements in force at the time.
Where an estimate is provided, the scheme may need to confirm the final value later.
Information about beneficiaries may not always be available at the same time. Trustees may, for example, still need to exercise discretion over who receives a pension death benefit, with some information following within the separate statutory timeframe.
For executors, pension values may therefore arrive at different stages rather than alongside bank balances and other more straightforward estate assets.
Can pension benefits be temporarily withheld?
Potentially, yes.
Where the relevant statutory conditions are met, a personal representative or prospective personal representative can issue a withholding notice to a pension scheme.
Where the relevant statutory conditions are met, a withholding notice can require the pension scheme administrator to withhold up to 50% of a person's relevant pension death benefit entitlement for up to 15 months after the end of the month in which the member died. The withholding mechanism is subject to specific statutory conditions and should not be interpreted as the amount of Inheritance Tax that will ultimately be payable.
The notice can end sooner if it is withdrawn or the relevant IHT and interest have been settled.
For beneficiaries, this can affect when pension death benefits become fully available.
Importantly, a 50% withholding limit does not mean that 50% of the pension will ultimately be lost to Inheritance Tax. The mechanism is designed to retain funds temporarily while the liability is established.
Can pension funds be used to pay the IHT?
The new rules also introduce a Pensions Direct Payment Scheme.
Where the relevant conditions are satisfied, a personal representative or pension beneficiary can issue a payment notice asking a registered pension scheme to pay pension-related IHT directly to HMRC from pension funds.
Under the current HMRC process, the Pensions Direct Payment Scheme can only be used where the Inheritance Tax (and interest) liability being paid is at least £1,000. A valid payment notice generally starts a 35-day period for the pension scheme administrator to make the payment. The precise requirements should be checked against the HMRC guidance and legislation in force when the estate is administered.
This mechanism allows qualifying pension-related IHT to be paid from pension funds rather than requiring the same amount to be funded entirely from other estate resources.
It also means communication between beneficiaries, personal representatives and pension schemes can become an important part of settling the estate.
What could the changes mean for beneficiaries?
Beneficiaries will not automatically become responsible for administering the wider estate simply because they inherit pension benefits.
However, the amount and timing of what they receive may be affected by the estate's IHT position.
| Situation | Possible effect |
|---|---|
| Pension benefit passes to an exempt beneficiary | An IHT exemption may apply where the relevant conditions are met |
| Withholding notice applies | Part of the pension benefit may be temporarily retained |
| Pension-related IHT is due | Pension funds may potentially be used towards the liability |
| No IHT is due | The new IHT rules may not reduce the pension benefit received |
| Separate Income Tax rules apply | The eventual withdrawal or payment may have its own tax treatment |
Inheritance Tax and Income Tax are separate considerations.
The IHT treatment of a pension death benefit should therefore not be assumed to determine the beneficiary's complete tax position.
What if the beneficiary is a spouse or civil partner?
The existing spouse and civil partner exemption remains important under the new regime.
Where pension benefits pass to a surviving spouse or civil partner, an IHT exemption may apply where the statutory conditions are met.
Pension scheme administrators may identify benefits expected to pass to a potentially exempt beneficiary, but they do not determine the final availability of the exemption. That forms part of the wider estate's tax position.
HMRC's Inheritance Tax guidance explains the spouse or civil partner exemption and the wider nil-rate-band rules.
This is why describing the reform simply as “pensions will be taxed at 40% from 2027” would be misleading. The outcome can differ materially depending on the beneficiary, estate value and available exemptions.
Practical information families may wish to review before April 2027
The reform does not mean pension holders need to change their pension arrangements. However, accurate records can make future estate administration easier.
Relevant information to review can include:
- whether records of pension arrangements are up to date
- whether beneficiary or expression-of-wish nominations still reflect current intentions, while recognising that nominations do not by themselves determine the final IHT treatment
- whether executors know that pension arrangements exist
- whether a Will still reflects current intentions
- how pension wealth fits alongside the rest of the estate
- whether proposed pension or gifting changes are being considered for reasons beyond simply avoiding the new IHT rules
Actions taken purely to avoid the new IHT treatment could create different tax consequences, reduce retirement security or simply move money into other assets that remain part of the estate.
Our guide to reducing Inheritance Tax looks at broader estate-planning considerations, including lifetime gifts, allowances and other assets.
How the 2027 rules change estate administration
From April 2027, pension administration after death will become more closely connected with the administration of the wider estate.
Executors may need pension information before the final IHT position can be established. Beneficiaries may need to communicate with the personal representative and pension provider before all benefits can be released.
The core reform is already legislated through Finance Act 2026. HMRC has said it will continue publishing supporting guidance and materials ahead of implementation in April 2027.
Families administering an estate after the change should therefore use the legislation and HMRC guidance in force at the time rather than relying solely on information published during the implementation period.
If you are reviewing how pension wealth could fit into your family's wider estate arrangements, our Estate and Lifestyle Planning service can provide information about our approach to Inheritance Tax analysis, gifting strategies, trust-structure liaison and wealth transfers. The appropriate approach depends on individual circumstances and may require financial, tax or legal advice.
Estate administration and the interpretation of Wills or trust documents may require legal advice. Tax matters may require advice from an appropriately qualified tax professional. Where regulated pensions or investments are involved, regulated financial advice may also be appropriate.
McCarthy Wealth is a trading style of Clarity Wealth Management LLP which is authorised and regulated by the Financial Conduct Authority. No: 575252
The Financial Conduct Authority does not regulate advice on estate planning, wills or probate. Tax and trust planning may also fall outside FCA regulation. Where regulated pensions or investments are involved, the associated financial advice may be regulated. Tax treatment depends on individual circumstances and may change.
