The introduction of inheritance tax (IHT) on many unused pension funds from 6 April 2027 is one of the biggest changes to estate planning in recent years.
Much of the discussion has focused on the potential tax cost for families. However, there is another important consequence that is receiving far less attention.
The new rules will place significant additional responsibilities on the executors of your estate, making it even more important to think carefully about who you appoint to carry out that role.
Although the legislation introducing pension inheritance tax has now been passed, the practical details are still being developed.
HMRC is continuing to produce regulations and guidance that will determine exactly how the new system operates. With the changes taking effect in April 2027, there is still work to be done before the process is fully established.
One thing is already clear. Administering an estate where pension benefits are involved is likely to become more complex.
Under the new rules, the personal representatives of an estate, usually the executors named in a will, will have primary responsibility for reporting and paying any inheritance tax due on pension death benefits.
This means executors will need to work closely with pension providers, beneficiaries and HMRC to establish the value of pension benefits and calculate any tax liability.
Where beneficiaries receive pension benefits directly, they may also become jointly responsible for any inheritance tax that remains unpaid. In other words, if the estate does not settle the tax, HMRC may be able to recover it from the beneficiary instead.
Because it can take many months to establish the full value of an estate, HMRC has confirmed that executors will be able to ask pension schemes to temporarily withhold up to 50% of a beneficiary’s pension entitlement while any inheritance tax position is finalised.
This withholding period can last for up to 15 months.
The rules will not apply where the beneficiary is exempt from inheritance tax, such as a surviving spouse or civil partner, and certain types of pension death benefits are also excluded.
Being an executor has always carried legal and administrative responsibilities. These new pension rules make the role even more demanding.
If your will was written several years ago, now may be a good opportunity to consider whether the people you have appointed are still willing and able to deal with what is becoming an increasingly complex estate administration process.
For anyone who has not yet made a will, these changes provide another compelling reason to put one in place.
Estate planning is no longer simply about deciding who should inherit your assets. It is also about making sure the right people are in place to administer your affairs efficiently when the time comes.
As pensions become part of the inheritance tax calculation, executors will face greater responsibility and closer interaction with HMRC and pension providers. Reviewing your will and your choice of executors now could save your family unnecessary complications in the future.
HMRC’s technical note on inheritance tax and pensions can be found here.
All data and figures referred to in our news section are correct at the date of publishing and should not be relied upon as still current.
