Overview
- HM Revenue and Customs published a technical note this week confirming that from April 6, 2027 most unused pension pots and pension death benefits will be counted in a deceased person’s estate for inheritance tax.
- Personal representatives will be required to take “reasonable steps” to identify, value and report pensions to HMRC and they can ask providers to pay IHT directly to avoid delays.
- The note introduces a temporary withholding power that allows providers to retain up to 50% of certain lump-sum payments for up to 15 months so tax can be assessed and collected.
- HMRC says IHT will be applied before any income tax on inherited pension funds, but advisers warn the sequence can still produce very high effective tax rates for some beneficiaries, an outcome described as the ‘67% tax trap’ by industry figures.
- Some benefits remain exempt—including many death-in-service payments, joint-life annuities and dependents’ scheme pensions—but advisers warn poor public understanding and fragmented records could still push families into big bills or complex probate unless people seek planning and regulated advice now.