Pensions and inheritance tax: HMRC reveals more on how the new rules will work
London, 14 May 2026: One of the most controversial pension tax changes in recent years has moved a step closer, with HMRC publishing a technical note this week on how pensions will fall within inheritance tax rules from April 2027.
With less than a year until the reforms take effect, the update provides new detail on how families, executors and pension schemes will be expected to value pension assets, calculate liabilities and manage payments to HMRC.
Maike Currie, VP Personal Finance at PensionBee comments: “An admin nightmare is waiting in the wings for grieving families. Personal representatives - usually family members, friends or executors responsible for dealing with someone’s estate after death - will effectively become pension detectives, expected to track down old workplace schemes, historic pension pots and online-only accounts, often with incomplete records and missing passwords.
“One simple but important thing people can do now is ensure their expression of wish forms detailing their beneficiaries are up to date with all pension providers. Clear beneficiary information and accurate records could significantly reduce delays, confusion and stress for loved ones later on.”
Five key changes when pensions become part of your estate for IHT
1. Most unused pensions will count towards your estate
From 6 April 2027, most unused pension funds and certain pension death benefits will be bought within the perimeter of a deceased person’s estate, for Inheritance Tax purposes. This removes any distortions which may have led to pension schemes being used as a tax planning vehicle to transfer wealth, rather than for funding retirement, and inconsistencies in the Inheritance Tax treatment of different types of pensions.
2. Families face a major new admin burden
Personal representatives will be responsible for tracking down all pensions, gathering valuations, calculating any IHT due and reporting this to HMRC using a new online tool. In practice, this could mean searching through paperwork, old workplace schemes, online accounts and historic providers at the same time as dealing with bereavement and probate.
3. Pension schemes may withhold money
Schemes can be instructed to withhold up to 50% of pension death benefits until inheritance tax liabilities are settled. HMRC says this is designed to stop families having to use non-pension assets to pay the tax bill.
4. Some pension benefits remain exempt
Death-in-service benefits will stay outside inheritance tax, as will pension transfers to spouses and UK-resident civil partners, although these may still need to be reported. Estates leaving at least 10% to charity may qualify for the reduced 36% IHT rate.
5. The system is still being built
HMRC guidance, templates and support tools will continue to be rolled out through 2026 and into spring 2027, leaving pension schemes under pressure to update systems, websites and member communications shortly before the rules take effect.
Maike Currie, VP Personal Finance at PensionBee comments: “There is a bit of good news for bereaved families with HMRC confirming that, in most cases, up to half of pension death benefits should still be able to be paid out relatively quickly while inheritance tax liabilities are being settled.
“The reforms may be aimed at stopping pensions being used as inheritance tax shelters, but the practical burden will fall heavily on ordinary families navigating bereavement at an already stressful time. Pension housekeeping is about to become essential estate planning.”
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