HM Revenue and Customs (HMRC) has issued an update on the upcoming inheritance tax (IHT) raid on pension savings that will come into effect from April 2027.
During her 2024 Budget statement, Chancellor Rachel Reeves confirmed retirement pots will become liable for the levy in a major change to the pension regime.
The latest guidance from HMRC arrives with fewer than twelve months remaining before the changes come into force.
It offers fresh clarity on the processes families, executors and pension providers must follow when valuing pension assets, working out tax liabilities and making payments to the tax authority.
HMRC has issued an inheritance tax update
| GETTYThe reforms aim to address distortions that may have encouraged the use of pensions as wealth transfer vehicles rather than retirement funding.
Bereaved families face what experts describe as a substantial administrative challenge under the new rules.
Personal representatives, typically relatives or executors handling a deceased person's affairs, will need to locate all pension holdings, obtain valuations, and report figures to HMRC through a new digital system.
Maike Currie, the vice president of Personal Finance at PensionBee, warns: "An admin nightmare is waiting in the wings for grieving families.
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Additional-rate taxpayers would be hit hardest, paying £270,000 in income tax and receiving £330,000 | ChatGPT"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."
HMRC's technical note outlines five principal changes taking effect from April 6, 2027. Most unused pension funds and certain death benefits will be counted as part of a deceased person's estate for inheritance tax purposes.
Pension schemes will have the authority to retain up to half of death benefits until tax obligations are resolved, a measure HMRC says is intended to prevent families from needing to liquidate other assets to cover the bill.
However, certain benefits remain outside the inheritance tax net, including death-in-service payments and transfers to spouses or UK-resident civil partners. Estates donating at least ten per cent to charity may qualify for a reduced 36 per cent tax rate.
How much pension tax relief you can get depends on your earnings | AJ Bell analysis of HMRC dataHMRC's guidance, templates and support tools will continue to be published throughout 2026 and into spring 2027, placing pension schemes under considerable pressure to upgrade their systems and communications before the deadline.
Ms Currie advises that individuals should ensure their expression of wish forms naming beneficiaries are current with all pension providers, noting that accurate records could significantly ease the burden on loved ones.
She added: "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."