From 6 April 2027 most unused pension funds and death benefits will count towards the estate for inheritance tax. Until then they generally sit outside it, which is why so many people were advised to draw other savings first and leave the pension untouched. That advice is about to have the opposite effect.
The change that matters most was not the headline. HMRC originally proposed that pension scheme administrators would report and pay the tax. After consultation it reversed course, and the duty now falls on the personal representatives — the executors, who are usually the deceased's own children. They must identify every scheme, obtain a date-of-death value from each, apportion the nil-rate band across the estate and each pension, and report and pay. They are jointly and severally liable with the beneficiaries for the accuracy of it.
HMRC expects around 10,500 estates a year to become liable for inheritance tax for the first time as a result, with roughly 38,500 paying more than they otherwise would. The people it catches are not the very wealthy, who have advisers. They are households where a modest house and an untouched pension quietly add up past the allowances.
One piece of relief exists. Under the Pensions Direct Payment Scheme a scheme can pay its share of the tax straight to HMRC rather than paying out to beneficiaries who then have to fund the bill. The share must be at least £1,000 and the scheme has 35 days once instructed. It only helps if the executor knows the apportioned figure and serves the notice, which is precisely the calculation the change creates.
The deadline does not move to accommodate any of this. Inheritance tax is due six months after the end of the month of death, interest runs at around 7.75% after that, and probate is not granted until the tax is paid — so the money is needed before the estate can be accessed.
Yes. From 6 April 2027 most unused pension funds and death benefits form part of the estate for inheritance tax. Death-in-service benefits from a registered scheme and dependants' scheme pensions remain outside it.
The personal representatives — the executors. HMRC consulted on placing the duty on pension scheme administrators and then reversed that decision. Executors must obtain a value from every scheme, apportion the nil-rate band, and report and pay, jointly and severally liable with the beneficiaries.
The tax is apportioned in proportion to value. A pension worth a quarter of the net estate carries roughly a quarter of the tax, and that share is what the executor reports for that scheme and can ask it to pay directly.
It lets a pension scheme pay its apportioned share of the inheritance tax directly to HMRC instead of paying out to beneficiaries who then have to fund the bill. The share must be at least £1,000 and the scheme has 35 days to pay once properly instructed.
No. Death-in-service benefits paid from a registered pension scheme are outside the scope of the change, as are dependants' scheme pensions.
Trace every pension the person held, including old workplace schemes, and write to each provider early for a date-of-death value. Schemes commonly take weeks to reply, and the six-month payment deadline does not move. The Pension Tracing Service can search by former employer.
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