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Most unused pension funds and pension death benefits will be included in the value of your estate for inheritance tax (IHT) purposes for deaths on or after April 6, 2027, and HMRC has given more details about how the reforms will operate after this date.
Pension scheme administrators, insurance companies and personal representatives will need to share relevant information with one another under the new process, but also with beneficiaries and HMRC following a pension scheme member’s death. This should mean personal representatives can establish the estate’s IHT liability and help HMRC check that the correct amount of tax is paid.
A recent technical note from HMRC also covers how pension funds and death benefits will be valued and treated for IHT, the rules governing the exchange of information, circumstances in which pension benefits may be withheld, where pension schemes can pay IHT directly, and how to get clearance from HMRC.
What does this mean for my personal representatives?
There are five stages when personal representatives and pension scheme administrators will need to share information, according to HMRC. These are:
· Notification of death and basic information — the latter should be requested by the personal representative and includes the value of the notional pension property.
· Further information — requested by the personal representative when they are required to file an Inheritance Tax account, and includes the share of the notional pension property attributable to each beneficiary.
· Withholding notice — information for the personal representative and beneficiaries if the personal representative instructs the pension scheme administrator to with holdup to 50% of the notional pension property (and in cases where there is a pension transfer).
· Payment notice — information for the personal representatives and beneficiaries if either instructs the pension scheme administrator to pay some or all the Inheritance Tax attributable to the notional pension property.
· Payment of tax-free lump sum death benefits — information for the personal representative to determine if the deceased’s lump sum and death benefit allowance has been exceeded.
These stages arelisted in the order in which they are most likely to occur. However:
· Not all these stages will necessarily occur. For example, further information is only required if an Inheritance Tax account needs to be filed, which will not be the case for all deaths.
· Stages may occur concurrently. For example, a personal representative may request basic information and further information and instruct a pension scheme administrator to withhold benefits, all at the same time.
Where deadlines are expressed in days, these are calendar days.
Source: HMRC/GOV.UK
How is my personal representative identified?
There are two different pieces oflegislation that affect how your personal representatives, and prospectivepersonal representatives, are identified by HMRC:
· For income tax, the relevant definition is that in s.989 of the Income Tax Act2007. This definition enables both personal representatives and prospective personal representatives to request, and receive, the relevant information required from a pension scheme administrator or insurance company, without necessarily accepting legal responsibility for IHT.
· For IHT, 'personal representative' is defined in s.272 of the Inheritance Tax Act 1984 and applies to acting named executors dealing with the estate administration or instructing a third party to do so. Named executors can meet this definition before a grant of representation is issued. A “prospective personal representative” is defined separately in s.226A(12) of the Act. This allows someone who expects to administer the estate, but does not yet meet the stricter definition of a personal representative, to issue a withholding notice and receive relevant information.
Source: STEPand section 2.1 of HMRC’sTechnical Note 2.
How can I prove to the pension scheme administrators who I am?
HMRC is preparing more guidance to help pension scheme administrators verify the authority and identity of personal representatives and distinguish “between situations where the individual is acting as a personal representative, or a prospective personal representative who is seeking a grant of representation on intestacy”, according to STEP.
HMRC’s technical note includes a draft copy of the guidance, and explains the steps pension scheme administrators should take if nobody administering the estate contacts them. STEP added: “Other sections of the note deal with valuing the notional pension property; reporting potentially exempt beneficiaries; initial assessment of IHT liability, its apportionment, and when an IHT account is required; issues arising when a beneficiary is a trust; excluded benefits; and clearance certificates discharging personal representatives from IHT liability relating to previously undiscovered pension benefits.”
While STEP welcomes the guidance, Emily Deane TEP, STEP’s Technical Counsel and Head of Government Affairs, said: “STEP remains concerned that the new rules place a heavy administrative burden on executors and may make dealing with a loved one’s estate slower, more complex and more expensive.”
HMRC intends to publicise the changes to affected groups over winter 2026–27, before publishing its guidance and other supporting materials in spring 2027.
Contact us
If you would like to find out how these changes might affect you and your loved ones, then please get in touch with us and we will explain what you need to know.