Key Changes from April 6, 2027

From 6 April 2027, unused pension funds and death benefits will be subject to IHT at the standard rate of 40%. However, death-in-service benefits attached to registered pension schemes will remain exempt from IHT.

Reporting and Payment Responsibilities

Initially, there was uncertainty about who would be responsible for reporting pension scheme values to HM Revenue & Customs (HMRC) and paying any resulting IHT liability. Following a consultation period, the government has confirmed that Personal Representatives (PRs) of an estate will be responsible for:

• Making enquiries with the Pension Scheme Administrators (PSAs) to determine the value of the pension scheme.

• Reporting these values to HMRC.

• Arranging payment of the IHT liability on all components of the estate, including pensions.

Role of Personal Representatives and Pension Beneficiaries

PRs must calculate the portion of IHT attributable to the pension component of the estate and notify both the pension beneficiaries and PSAs. The PSAs and beneficiaries will then liaise to manage payment of the beneficial interest in the pension and the associated IHT liability.

• If the pension beneficiary agrees, the IHT liability can be paid directly from the pension scheme without triggering an Income Tax charge.

• If the beneficiary refuses, they are likely to face an Income Tax charge on the pension benefits they receive.

Potential Challenges and Impact

These reforms are expected to significantly impact PRs, estates, and beneficiaries. Some practical concerns include:

• IHT must be paid within six months of the date of death. PRs are personally responsible for this payment, and late payments incur interest.

• PSAs will need to respond promptly to PR enquiries, but delays may occur.

• Pension schemes are often not identified until well after death, complicating timely valuation and payment.

• Given the personal liability risks for PRs, many may reconsider whether acting as Executor or Administrator is worth the potential burden.

Summary

The IHT reforms to pension schemes introduce new responsibilities and potential tax charges that will affect estate administration. Executors and beneficiaries should seek professional advice early to understand the implications and ensure compliance.

In addition to the IHT reforms applicable to pension schemes, the government have issued policy papers and draft legislation in regards to the Agricultural and Business Property Relief reforms which is discussed further here.

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If you would like advice tailored to your circumstances, please contact us to arrange a meeting with one of our estate administration team.

About the author: Sam Turner