20/07/2026
5️⃣ points to consider before new tax rules kick in
It’s now less than nine months until unused pensions will be included in calculations for inheritance tax (from 6 April 2027) resulting in a raft of complex rules for compliance and no flexibility on deadlines for payment of tax to HMRC.
Personal representatives will now need to factor pensions into the IHT process alongside the estate’s other assets. That means more paperwork, more complexity and more responsibility at an already difficult time.
1. Telling the scheme someone has died
The personal representative will be responsible for telling the pension scheme the person has died. This means first tracking down all the pension schemes the deceased was a member of.
2. Valuing the pensions
The estate has to be valued, and that includes the pension too, as at the date of death.
3. Working out if any IHT is due
Once the value of all the pension schemes has been determined, as well as the other assets in the estate, Inheritance Tax has to be calculated to ascertain how much (if any) is due to be paid.
4. Asking schemes to withhold pension money
Most pension schemes decide who will inherit any unused pensions and then pay that money to them. They may make this decision before the Inheritance Tax total has been calculated.
If it is going to be difficult to reclaim any Inheritance Tax due on the pension money, the pension scheme can be asked to put a hold on up to 50% of a beneficiary’s funds, this means that 50% can be paid to the beneficiary as soon as the scheme has done its paperwork, but 50% will be held back to pay a possible Inheritance Tax bill. Any funds being paid to a spouse, civil partner or charity will not be withheld.
5. Paying IHT
Once it has been agreed with HMRC what Inheritance Tax is due, the bill needs to be settled. There are three ways to pay any Inheritance Tax due on a pension:
- paid from the wider assets held in the estate;
- the beneficiary of the unused pension can pay the IHT from their own pocket; or
- the pension scheme can be asked to pay the IHT to HMRC before the unused pension funds are paid to the beneficiary.
Once the Inheritance Tax has been paid, the pension scheme can release any money they were withholding.
