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3mo ago

UK to Treat Most Pensions as Part of Estates and Allow Schemes to Withhold Half for Inheritance Tax

The rule, due to take effect in April 2027, will let pension schemes hold 50% of death benefits for up to 15 months while IHT is assessed, creating cash and administrative pressure on families and executors.

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Overview

  • Lawmakers have confirmed that from April 6, 2027 most unused pension pots and certain pension death benefits will be counted in Inheritance Tax (IHT) estate valuations.
  • HMRC has authorised pension schemes to issue a withholding notice that can prevent paying more than 50% of a deceased member’s pension to any individual for up to 15 months while tax is calculated.
  • Executors will be responsible for valuing ‘notional pension property’, tracing historic workplace pensions, and paying IHT, which could leave personal representatives out of pocket if beneficiaries refuse to contribute.
  • Transfers to UK-resident spouses and civil partners remain exempt, but advisers warn estates with large pension pots could face new IHT bills — some estimates suggest affected families might see average increases around £34,000.
  • Financial firms and advisers urge immediate steps such as updating expression-of-wish forms, keeping pension records current, holding accessible cash or life cover in trust, and preparing for HMRC guidance due before April 2027.