By Lisa Webster, Senior Technical Consultant, AJ Bell
I recently spoke to ValidPath Members at their regional event in Manchester about the introduction of inheritance tax on pension death benefits for deaths occurring from 6 April 2027 onwards.
The details on how this will work in practice are still being finalised. On 11 May 2026 HMRC published a Technical Note and draft information sharing regulations, which give some more details, but the final guidance isn’t expected until Spring 2027.
Inheritance tax on pensions will become a more important part of retirement, estate and beneficiary planning. Advisers will need to understand how the process is expected to work after death, who may be responsible for reporting and paying tax, and how beneficiaries could be affected.
The 2027 pension fund inheritance tax changes remain subject to final operational detail, but the message is clear: advisers should start identifying potentially affected clients and reviewing existing plans now.
Explore more resources for ValidPath Members and IFAs.
IFAs need to start thinking about inheritance tax changes now
Since 2015, pensions have occupied a unique position within estate planning.
Clients were often encouraged to spend other assets first and preserve pension wealth because of the favourable inheritance tax treatment available on death. The pension inheritance tax reform challenges that approach.
The clients most likely to be affected include:
- Individuals with large undrawn defined contribution pensions
- Clients whose pension assets represent a significant proportion of their total wealth
- Estates approaching or exceeding £2 million
- Clients with strong intergenerational wealth objectives
- Families with more complex beneficiary arrangements
For these clients, advisers may need to revisit long-standing assumptions around retirement income and estate planning.
Read more: Independent Financial Adviser Compliance Checklist 2026
Responsibility for inheritance tax on pensions
Personal representatives (PRs) are responsible for the payment of inheritance tax on a deceased individual’s estate. For deaths occurring from 6 April 2027, this will also include responsibility for the inheritance tax arising from pensions.
Where the deceased left a will, the PR will be the executor named in that will. However, if the named executor is deceased, unable or unwilling to act, or if no will has been made then establishing who is the PR is less straightforward.
Under the rules of intestacy the closest relative will become the PR – the spouse if there is one, then any adult children, followed by parents then siblings. The individual will need to apply for letters of administration to be appointed, and this process can take time. Because of this eventuality the draft regulations contain provisions for “prospective personal representatives (PPRs)”.
The draft regulations state that only PRs and PPRs can request information from the pension scheme administrator to deal with the inheritance tax.
We are awaiting guidance on what pension scheme administrators should accept as evidence of identity as a PPR.
Information sharing
The PR/PPR will need to notify the pension scheme administrator of the member’s death and request a valuation and details of the split between exempt and non-exempt beneficiaries.
The pension scheme administrator has 28 days to provide the valuation to the PR/PPR, and the later of 28 days and 14 days after the beneficiaries have been determined, to provide the beneficiary information. The most common exempt beneficiary will be the spouse.
The PR/PPR will need to gather information on all assets held by the deceased, both in pensions and elsewhere. Once they have established that an inheritance tax account is needed, they will need to make a further request to the pension scheme administrator for the details of each beneficiary to include their full name, address, NI number (if known) and the value of the pension attributable to them. The pension scheme administrator must provide this information by the later of 28 days, or 14 days after the beneficiaries are determined.
Withholding notices
If the PR/PPR expects inheritance tax to be due on the pension they can issue a withholding notice to the pension scheme administrator.
When a valid notice is received, the pension scheme administrator must withhold 50% of the pension benefits and not distribute them to beneficiaries. A withholding notice cannot be applied to excluded benefits or to payments that are going to exempt beneficiaries (most commonly the spouse).
A pension scheme administrator does not need to delay distributing death benefits in anticipation of inheritance tax being due, or a withholding notice being issued. If a notice comes in after they have already paid funds across to a non-exempt beneficiary, they must inform the PR/PPR of this fact.
The notice remains in place until the earliest of:
- The notice is withdrawn by PR/PPR
- The relevant inheritance tax is paid
- 15 months after end of month member died
The three ways inheritance tax could be paid
One of the most common questions advisers ask is how inheritance tax on pension benefits will actually be settled. There are three possible routes.
The PRs settle inheritance tax using estate assets. Where pension beneficiaries differ from estate beneficiaries, PRs may subsequently recover the pension-related tax from those beneficiaries.
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Direct payment by beneficiaries
Beneficiaries can pay inheritance tax directly themselves. Where applicable, they may later be able to claim income tax relief through HMRC.
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Payment from the pension scheme
Beneficiaries or PRs will be able to instruct the pension scheme administrator to pay inheritance tax directly to HMRC from pension funds. This is only possible where the inheritance tax due (including any late payment interest) is at least £1,000. The pension can only pay the inheritance tax arising from the pension itself – it is not possible for the pension to pay any inheritance tax liability arising from assets held in the wider estate.
Read more: Inside a successful Client Buyout: Donald Murray and Angus Bunten on succession, growth and client continuity
Understanding the income tax interaction
One of the more complex aspects of the proposals is the interaction between inheritance tax and income tax.
In some circumstances, pension benefits could be subject to inheritance tax and then become subject to income tax when withdrawn by beneficiaries. To help address this, the proposed rules include a mechanism allowing beneficiaries to offset certain inheritance tax amounts against future income tax liabilities.
While the principle is relatively straightforward, the calculations can become complex, particularly where pension benefits are withdrawn over a number of tax years. This is likely to become an important area of guidance for advisers supporting beneficiaries and personal representatives.
Five actions to take before April 2027
Although implementation remains some way off, there are practical steps advisers can take now.
- Review beneficiary nominations: Ensure nominations remain accurate and aligned with the client’s current wishes. Appropriate beneficiaries may change before and after 6 April 2027.
- Check executor arrangements: The proposed process places considerable responsibility on PRs. The will should be up to date with executors named who are willing and capable of dealing with the estate.
- Improve record keeping: Good records will help PRs identify pension assets and smooth the process for beneficiaries.
- Revisit retirement income strategies: The long-standing assumption that pensions should be the last asset clients spend may no longer be appropriate in every case.
- Prioritise potentially affected clients: Create a review programme for clients who may have significant pension inheritance tax exposure.
Read more: Building Your IFA Referral Network
Final thoughts
The pension inheritance tax changes will require many advisers to revisit planning strategies that have been in place for years.
By identifying potentially affected clients now and starting conversations early, firms can put themselves in the strongest position ahead of implementation.
Key takeaways
- Most unused pension funds and death benefits are expected to fall within the scope of inheritance tax from April 2027.
- Personal representatives will play a central role in gathering information, calculating liabilities and arranging payment.
- Inheritance tax may be paid from estate assets, by beneficiaries directly or via pension scheme administrators.
- Advisers should understand the interaction between inheritance tax and income tax when supporting beneficiaries.
- Clients with large undrawn pensions and significant pension wealth should be prioritised for review.
