From 6 April 2027, most unused pension funds and pension death benefits will be brought within the value of a deceased person’s estate for Inheritance Tax purposes. HMRC recently published a policy paper providing technical guidance setting out reporting and payment obligations for pension scheme administrators (PSA), personal representatives (PR) and beneficiaries.
This article sets out what the changes mean for the PR and what advisers might need to be thinking about ahead of April 2027.
What this means for PRs
The PR — whether an executor named in the will or an administrator appointed by the court — takes on significant new responsibilities from April 2027. They become the primary reporting party for IHT on pension assets and are liable for the tax from the outset.
Engagement with the PSA
The PR's first formal task is to request the pension valuation from the PSA of all pension schemes in scope for IHT. The PSA then has 28 days to comply with the request. The PR will need to provide evidence of their identity to the PSA, like a copy of the will, although HMRC will publish guidance on what evidence is acceptable, including in the period before probate is formally granted.
By itself, the valuation may not provide sufficient information for the PRs to calculate whether IHT is due on the pension benefits. Certain beneficiaries (mainly spouses and charities) are exempt and, to calculate the IHT, they will need to know how much of the unused pensions will funds will be paid to either exempt or non-exempt beneficiaries. This information can only be provided to the PR once the PSA has determined the beneficiaries.
If the PRs believe that IHT will be due on the pension funds they can issue the PSA with a withholding notice instructing the PSA to withhold up to 50% of a beneficiary’s entitlement pending IHT payment. HMRC will publish standard templates for these notices ahead of April 2027.
Once the IHT position has been established, the PRs (or the beneficiaries) can send the PSA a payment notice directing the PSA to pay IHT directly to HMRC from the pension fund on their behalf. Importantly, whilst a prospective PR (i.e. someone who expects to be appointed but does not yet have a formal grant) can issue a withholding notice they cannot issue a payment notice.
Advisers can add real value here by helping clients understand that this engagement needs to happen promptly. The IHT deadline — six months from the end of the month of death — applies to pension property as well as the rest of the estate, and late payment interest accrues after that point.
Reporting to HMRC
The PR is also responsible for reporting the pension assets on the IHT account (IHT400) where one is required. Whether an IHT account is needed depends on the size and nature of the estate:
No IHT account required: Estates that fall within the excepted estates rules — broadly, gross estate (now including pension) below £325,000, or exempt estates where the net chargeable estate (after spouse/charity exemption) does not exceed the nil rate band and gross estate does not exceed £3 million.
IHT account required, no tax to pay: Where the estate is outside excepted estate limits but no IHT is due — for example, where the full estate passes to a spouse or charity but the gross estate exceeds £3 million.
IHT account required, tax due: The standard position where the estate exceeds available nil rate bands and/or reliefs.
Advisers should note that pension assets added to the estate may push previously excepted estates above the thresholds, requiring an IHT400 even where no IHT is ultimately due.
The amendment process
After the initial IHT return is filed and tax paid, there is a formal amendment mechanism covering situations where:
The PR later discovers additional pension assets not originally reported.
Beneficiary entitlements are varied after the initial IHT assessment.
The nil rate band needs to be reapportioned.
Once IHT on the pension has been reported and paid, the PR can apply to HMRC for a discharge certificate in respect of the pension assets. This provides formal confirmation that HMRC's claim against the pension has been satisfied and that the PSA can release the remaining benefits to beneficiaries without further liability. In practice, the PR applies for discharge once the IHT account has been submitted and the tax paid — HMRC will issue the certificate once satisfied that the correct amount has been accounted for.
However, a discharge certificate only covers the pension asset itself. It does not protect the PR against any additional IHT that may arise on the rest of the estate if the nil rate band needs to be reapportioned. If a pension is discovered after the initial IHT account has been filed — which is not uncommon where a member held multiple schemes — it may be necessary to amend the return and reapportion the nil rate band between pension and non-pension assets. That reapportionment could increase the IHT due on the non-pension estate, and the PR remains liable for that additional tax even if discharge has already been obtained in respect of the pension. Advisers should flag this risk in larger or more complex estates and encourage executors to make thorough enquiries about all pension arrangements before submitting the initial IHT account.
Planning points
1. Expression of wishes
Make sure clients have completed an expression of wishes and that it is kept up to date. This can be updated online under Housekeeping > Pension Beneficiaries. An up-to-date expression of wishes can help trustees determine beneficiaries more quickly – an important consideration given the 6-month deadline for paying IHT.
Also, nominations that made sense under the old regime should be reviewed. A nomination in favour of adult children who have their own estates may now create IHT where none previously existed. On the other hand, nominating a spouse may just create a bigger IHT issue on second death.
2. Consider the impact on overall IHT planning
Pension assets will now form part of the taxable estate. For clients with significant pension funds alongside other assets, the overall IHT exposure may be materially higher than previously modelled. IHT planning strategies — including gifts, trusts, and life assurance — should be revisited with pension assets now in the picture. A Lifetime Gifting Log and accompanying guide is available under Information.
3. Check whether charitable legacies in wills still hit the 10% threshold
The 36% reduced IHT rate applies where at least 10% of the "net estate" (or the relevant component of it) passes to charity. Pension assets fall into the “general component” of the estate alongside the main free estate. This means that bringing a large pension into the general component increases the baseline against which the 10% threshold is measured.
Clients with fixed charitable legacies in their wills — rather than percentage-based gifts — may find that the addition of pension assets to the general component means they no longer meet the 10% threshold, losing the 36% rate. Advisers should recommend a will review for any client in this position.
4. Note that instalment payments are not available
For most estate assets, IHT on illiquid assets (such as property) can be paid in annual instalments over ten years. This option is not available for pension-related IHT. The full IHT on pension property must be paid within six months of the end of the month of death. Where a large pension is the primary asset and cash in the estate is limited, this could create liquidity pressure. Life assurance written in trust is one mitigation; another is the payment notice route, which allows IHT to be discharged directly from the pension fund itself (although the pension cannot be used to pay the IHT on the free estate).
5. Consider drawing tax free benefits once clients each age 75
Under the new regime tax free benefits held in the pension (e.g. PCLS) post age 75 will be subject to both IHT and income tax on death. Withdrawing these amounts from the pension prior to death will avoid the income tax charge applicable post death.
6. Quick succession relief — worth knowing
Where pension property is taxed twice within five years — for example, where a beneficiary themselves dies shortly after receiving vested pension benefits — quick succession relief is available to reduce the double IHT charge. This is unlikely to arise frequently but is worth flagging in multi-generational planning conversations.
7. Loss on sale relief
Loss on sale relief — which reduces IHT where assets are sold for less than their probate value — is not available for pension assets. If pension fund values fall after the date of death, the IHT charge stands based on the value at date of death. There is no mechanism to reduce it retrospectively.
What Happens Next
The Finance Act 2026 received Royal Assent on 18 March 2026. The secondary legislation covering the information sharing requirements between PRs and PSAs is expected to be laid later in 2026. HMRC has committed to publishing:
Draft regulations for technical consultation (spring/summer 2026)
Standard templates for withholding and payment notices (by April 2027)
Guidance on PR identity evidence requirements (by April 2027)
Updated tax manuals (by April 2027)
Interactive tools to support PRs (by April 2027)
The pace of regulatory publication means advisers and PSAs will be working with draft materials for much of the remaining run-up to April 2027. We will continue to update our technical guidance as further detail is published and will provide training and support materials to help advisers navigate the new framework with confidence.
All information is based on our understanding and interpretation of applicable law and regulation which is subject to change. Tax treatment depends on individual client circumstances and may change in the future.