Most Unused Pension Pots to Face Inheritance Tax from April 2027, HMRC Publishes Initial Guidance

HM Revenue and Customs published fresh guidance on changes to inheritance tax on pension savings. Most unused pension pots and death benefits will be included within estate valuations for inheritance tax purposes from April 6, 2027. The current system largely excludes pension wealth from inheritance tax calculations.

HMRC issued a technical note setting out the first details of how the pension inheritance tax changes are expected to operate. Fuller guidance and supporting regulations on the pension inheritance tax changes are still due to be published. Further clarification on the pension inheritance tax changes is expected later in 2026 or in early 2027.

Those responsible for administering a deceased person’s estate will be required to take reasonable steps to identify pension savings, establish their value and ensure any inheritance tax owed is paid correctly. Reasonable steps are expected to involve reviewing financial paperwork and bank statements and contacting pension providers and insurance schemes directly where necessary.

The technical note did not clearly define what would constitute reasonable steps.

The standard six-month deadline for paying inheritance tax after a death will apply to pension funds brought into scope under the new regime. Interest will continue to accrue on unpaid tax liabilities at the Bank of England’s base rate if the six-month deadline is missed.

Executors will be able to instruct pension providers to retain up to 50 per cent of lump sum pension payments that may become liable for inheritance tax for a period of up to 15 months.

Personal representatives and beneficiaries will be permitted to ask pension providers to transfer inheritance tax payments directly to HMRC on their behalf. Inheritance tax will apply before any income tax is charged on inherited pension funds. Beneficiaries will only pay income tax on the remaining balance after inheritance tax, avoiding double taxation.

Married couples and civil partners will continue to receive important inheritance tax protections under the revised framework. Any unused tax-free allowance from one spouse or civil partner may still be transferred to the surviving partner following death.

Couples will continue to be able to pass on estates worth up to £1 million without paying inheritance tax, subject to existing allowances and thresholds.

Most death in service benefits will remain outside the scope of the incoming pension inheritance tax changes. Pension scheme administrators may still be required to report those death in service payments to the tax authority under separate information-sharing requirements. Joint life annuities and dependents’ scheme pensions will also remain exempt from the new inheritance tax rules.

The implementation timetable includes draft regulations covering information-sharing requirements this spring, with final guidance and supporting materials expected to be published in spring 2027.