From 6 April 2027, most pensions left unused when someone dies will count as part of their estate for inheritance tax. Deaths before that date are not affected.
Until now, most pensions passed to family outside the estate and free of inheritance tax. That is changing, and it will affect many families who have never had to think about inheritance tax before.
What is changing
For deaths on or after 6 April 2027, the value of any unused pension fund and most pension death benefits will be added to the estate. If the total is over the available nil-rate bands, inheritance tax may be due on the pension as well as on everything else.
Who deals with it
The executors (the law calls them personal representatives) are responsible for reporting the pension to HMRC and making sure any tax on it is paid. The pension company does not do this for them.
In practice, this means executors will need to:
- find every pension the person had, including old workplace schemes
- get a value for each one from the provider
- work out the inheritance tax on the whole estate, including the pensions
- report it all to HMRC, often on the full IHT400 return
- arrange payment of the tax
Executors can ask the pension provider to hold back part of the benefits while the tax is worked out. Where the tax on a pension is £1,000 or more, they can ask the provider to pay it straight to HMRC.
Why this matters for families
More estates will pay
Many people have built up large pensions while keeping other savings modest. Once the pension is added in, estates that were well under the threshold may go over it.
More paperwork
Valuing pensions means writing to more providers and waiting for their replies. If a pension turns up late, the tax figures and the IHT400 have to be updated throughout.
Possible double tax
If the person died at 75 or over, the beneficiaries may also pay income tax when they take money out of the inherited pension. Planning ahead matters.
Mistakes cost money
A missed pension or a wrong figure can lead to HMRC enquiries, interest and penalties, and longer delays for beneficiaries.
What you can do now
If you have a pension you don’t expect to spend in full, now is the time to:
- check your nominations with each pension provider and keep them up to date
- keep a list of all your pensions, including old ones, for your executors
- review your will alongside your pensions
- get advice on whether inheritance tax is likely to be due, and how to plan for it
How we help
Smart Probate is an ICAEW Accredited Probate Practice, led by a Chartered Accountant and Chartered Tax Adviser. We handle the inheritance tax side of estates every day, including the IHT400, pension valuations and dealing with HMRC.
If you are an executor of an estate, or want to check how the new rules affect your own family, call us for a no-obligation chat.