In a significant change to the rules, most unused pension funds and pension death benefits (known as ‘notional pension property’) will be brought within the value of a deceased person’s estate for IHT purposes with effect for deaths on or after 6 April 2027. The policy was first announced at the Autumn Budget 2024 and is given effect by legislation included in Finance Act 2026 (s65-71).

The new rules 

Under the new rules, personal representatives (PRs) will be responsible for identifying and reporting the deceased’s pensions, and will be liable for paying any IHT due on notional pension property. PRs will also be responsible for submitting amendments to HMRC, if valuations change or if additional pension funds come to light.  

Pension beneficiaries will become jointly and severally liable with the PRs for any IHT attributable to the notional pension property from the point that it is vested. The process for administering estates with inheritable pension wealth will be similar to the process that already exists for administering estates. IHT due on notional pension property will need to be paid by the existing deadline of six months from the end of the month of death to avoid late payment interest. 

Further details 

HMRC has published a technical note explaining how it expects the new rules to work. Areas covered include: 

• The identity of PRs. This covers what evidence the pension scheme should accept so that they can liaise with the PRs before the grant of probate/confirmation.
• The scope of the rules. This includes how to calculate notional pension property, excluded benefits and issues around residency and situs. 
• The information sharing requirements. Secondary legislation that provides the framework enabling pension scheme administrators (PSAs) and PRs to exchange all of the necessary information has also been published for technical consultation.   
• The use of withholding notices. A withholding notice allows a PR to instruct a PSA of a registered pension scheme to withhold up to 50% of an individual’s benefit entitlement under the scheme for up to 15 months from the date of death. There are some circumstances when a withholding notice cannot be used, including certain schemes with an overseas connection, payments of excluded benefits and payments to exempt beneficiaries.
• The pensions direct payment scheme. This allows PRs and pension beneficiaries to issue a notice (a payment notice) requiring the PSA to pay the IHT due on the notional pension property held within the scheme directly to HMRC.
• The income tax position. Briefly, where a member dies below age 75, pension income from survivors’ annuities and dependants’ drawdown funds are usually free of IHT. If the deceased was aged 75 or over, or a lump sum is paid more than two years after death, the recipient is liable to income tax. The amount that counts as taxable income in the recipient’s hands is reduced by the proportion of IHT that has been paid on their share of the pension. 
• Probate and discharge certificates. PRs can be discharged from liability for any tax due on undiscovered pensions where they have received clearance from HMRC (a certificate of discharge). Pension beneficiaries will remain liable for any IHT on such pensions.
• Whether IHT reliefs are available. The guidance confirms that quick succession relief and the reduced 36% rate of IHT are available. However, the underlying assets held in a pension fund are not eligible for loss on sale relief, agricultural property relief or business property relief. IHT due on pensions cannot be paid by instalments. 

This technical note is not draft guidance. HMRC says that it will publish guidance, supporting materials and templates, as well as interactive tools to support PRs and PSAs, by April 2027.