Inheritance tax raid on pensions to be 'one of the biggest challenges' for British families

The findings come as significant changes loom on the horizon, with personal representatives set to face new responsibilities from April 2027.

Under the incoming rules, those administering an estate, typically relatives or close friends, must factor in any remaining pension funds when calculating whether an estate surpasses the available inheritance tax nil rate band.

Payment of any tax owed falls due within six months following the end of the month in which death occurs.

Neil Jones, tax and wealth planning specialist at Standard Life, identifies tracking down all pension holdings as a major hurdle facing those handling estates.

He said: "One of the biggest challenges will be identifying all the deceased's pension pots. "Those approaching retirement today typically have two or three pensions, but younger generations are expected to have 11 or 12 pots over their working lives, largely due to job mobility and pensions autoenrolment."

Mr Jones notes that bringing multiple pensions together could simplify matters for personal representatives in certain circumstances.

However, he cautions that consolidation decisions require careful consideration, as combining pots might mean forfeiting valuable features or guarantees attached to existing arrangements.

The research uncovers particularly stark concerns among older age groups, with just 32 per cent of those aged 55 and above expressing confidence that appointed personal representatives could effectively handle inheritance tax payments on pension assets.

This scepticism arrives against a backdrop of rising estate values, with projections indicating that approximately one in ten estates will breach the inheritance tax threshold by 2030.

For those likely to be affected, understanding the mechanics of the new system becomes essential, including clarity on who bears responsibility for pension-related tax payments, the procedural requirements involved, and the strict deadlines that must be observed.

Mr Jones emphasises that the emotional toll of losing someone should not be underestimated when considering these administrative demands.

He explained: "The impact of bereavement on decision-making should not be underplayed. "Research shows that grief can be associated with reduced functional capacity, affecting decision-making not just emotional wellbeing."

The tax expert noted that this diminished capacity can hamper the ability of personal representatives to tackle complex paperwork and meet tight deadlines whilst mourning.

For families navigating both loss and estate administration simultaneously, advance preparation proves crucial in lightening the burden.