From 6 April 2027, most unused pension funds and pension death benefits will be brought into a person’s estate for Inheritance Tax purposes.
That is a major change.
Pensions have long sat outside the estate for Inheritance Tax, making them valuable for estate planning. Now, the Government is changing the rules, viewing this as a tax planning advantage. HMRC says the change applies to deaths on or after 6 April 2027, and will bring most unused pension funds and death benefits into the value of the deceased person’s estate.
The official view is that this removes “distortions.” In reality, it makes the probate process more complex, slower, and more costly for families and professionals — especially during grieving.
For families in Northern Ireland, this is not just a pensions issue. It is a Wills, probate, estate planning and Inheritance Tax issue.
What is changing to Inheritance Tax on pensions?
From 6 April 2027, most unused pension funds and pension death benefits will be treated as part of the deceased person’s estate for Inheritance Tax. HMRC refers to this as “notional pension property.”
Personal representatives must now identify pensions, obtain valuations, determine if Inheritance Tax is due, and report pension values to HMRC.
This change applies to deaths occurring on or after 6 April 2027. If someone dies before this date, the current rules continue to apply, regardless of when the pension benefits are paid.
Who is liable for Inheritance Tax on pension funds?
Here, the new rules become particularly challenging.
Under HMRC’s technical note, the personal representatives will be responsible for reporting and paying any Inheritance Tax due on pension wealth. Once pension benefits have become vested in a beneficiary, that beneficiary can also become jointly and severally liable with the personal representatives for the Inheritance Tax attributable to that pension property.
HMRC may be able to look to more than one person for the tax.
Executors face pressure when dealing with assets not under direct control. Pension funds may be held elsewhere, beneficiaries may differ, and executors must calculate taxes, gather data, and avoid liability.
This is a significant administrative change to probate.
The six-month Inheritance Tax deadline
Inheritance Tax on pension wealth is due at the usual time — by the end of the sixth calendar month after the date of death. For example, if death occurs in January, the tax must be paid by 31 July. Late payment will result in interest charges.
While the deadline seems manageable, consider what happens after someone dies.
The family must register the death, arrange the funeral, find the Will, identify executors, gather financial papers, contact banks, value property, trace pensions, and determine if Inheritance Tax is due.
Pensions will also need to be included in these steps.
Personal representatives must contact each pension scheme promptly, since pension scheme administrators are expected to provide valuation information within 28 days of a written request. If a final figure is not available, an estimate is permitted within this period.
That is fine on paper. In the real world, pensions can be scattered across old employers, consolidated badly, forgotten entirely, or buried in paperwork nobody has touched for years. If the deceased had several pension schemes, the executor may have to chase multiple providers, all with their own forms, call centres, procedures and delays.
Pensions holding property: the fire sale problem
The valuation of the pension property is based on its open-market value at the date of death. HMRC’s technical note says pension administrators will need to provide the open market value as at that date.
Difficulties may arise when pensions include illiquid assets, particularly property.
If a pension fund holds unsellable assets, like commercial property, families may struggle to raise Inheritance Tax funds within six months. Forced sales often bring lower prices.
So the estate may be taxed at the date-of-death value, but the sale may occur later, possibly under pressure, in a weaker market, or at a discount. This creates a potential “fire sale” risk.
HMRC may say this is just a normal valuation and payment procedure. Families dealing with a lumpy pension property asset may experience it rather differently.
The logistical nightmare for executors and families
The new system requires extensive information sharing.
Personal representatives must get pension information, including from exempt beneficiaries, so the values can be included in the HMRC account and exemptions claimed if relevant.
That means the following people may all need to be involved:
- executors or administrators;
- pension scheme administrators;
- pension trustees;
- beneficiaries;
- solicitors;
- accountants or tax advisers;
- HMRC;
- possibly insurance companies involved in pension annuities.
This system may appear straightforward in government documentation, but in practice, it becomes more complex for those managing estates.
The family may not even know where all the pensions are. HMRC says personal representatives should take reasonable steps to identify pension schemes, including checking documents and records, reviewing bank accounts, and speaking to relatives, advisers, and business partners. If a pension is discovered later, the Inheritance Tax position may need to be corrected.
This places a significant responsibility on lay executors.
Can Inheritance Tax be paid directly from the pension?
Yes, in some cases.
The new rules include a Pensions Direct Payment Scheme: personal representatives or pension beneficiaries may issue a payment notice requiring the pension scheme administrator to pay Inheritance Tax directly to HMRC from the pension fund. The scheme administrator must pay within 35 days of receiving a valid notice.
That sounds useful, and often it will be.
This system still relies on correct actions, accurate calculations, clear communication, and proper processing by all involved. Multiple schemes and beneficiaries can complicate things.
There is also a withholding mechanism. A personal representative can instruct a pension scheme administrator to withhold up to 50% of a beneficiary’s entitlement where they know or reasonably believe Inheritance Tax may be due. HMRC says this should not be used routinely, but it is clearly designed to prevent pension payments from being made before the tax position is settled.
In practice, the process involves additional paperwork and possible delays, increasing the risk of disagreements among family members.
What about income tax on pension death benefits?
This is one of the most misunderstood parts of the change.
Inheritance Tax and income tax are separate taxes. Pension death benefits may also be subject to income tax, depending on the deceased’s age and the type of benefit.
HMRC’s technical note says that if the pension member dies under age 75, pension income from survivors’ annuities and dependants’ drawdown funds is usually tax-free, and lump sum death benefits may also be tax-free if the lump sum and death benefit allowance have not been exceeded. If the member dies at age 75 or older, all death benefits are taxable.
Where Inheritance Tax is paid in relation to pension death benefits, HMRC says the part of the pension benefit corresponding to the IHT paid should not count towards the beneficiary’s taxable income. In other words, income tax should generally apply to the pension benefits net of the IHT burden, not simply on the full pre-IHT amount.
However, this does not make the policy straightforward.
Families may still be dealing with an estate subject to Inheritance Tax, and beneficiaries may face income tax on pension withdrawals or benefits. It may not be “double tax” in the crudest sense on the exact same slice of money, but it is absolutely a heavier combined tax and administration burden than many families currently expect.
Is every pension caught by the new Inheritance Tax rules?
No.
There are exclusions and exemptions. For example, certain dependants’ scheme pensions, some joint life annuities and qualifying death-in-service benefits may be excluded. Transfers to spouses and civil partners may also be exempt from Inheritance Tax, provided the relevant conditions are met.
But that does not remove the administrative burden. Even where an exemption applies, the personal representatives may still need the information, including figures in the estate account, to properly claim the exemption.
The crucial point is that “no tax payable” still requires certain administrative actions.
Why this matters for families in Northern Ireland
For many families in Northern Ireland, pensions are now a major part of household wealth.
A person may have a home, savings, life policies, land, business interests, farming assets and pension funds. Until now, many families may have assumed that pension wealth sat in a separate box for Inheritance Tax purposes.
From April 2027, this assumption may no longer be reliable.
This will matter particularly for:
- families where the deceased had a large defined contribution pension;
- business owners who built up pension wealth over time;
- farmers and landowners with significant assets outside the pension;
- unmarried partners, where the spouse exemption is not available;
- blended families where pension beneficiaries differ from Will beneficiaries;
- estates already near or above the Inheritance Tax threshold;
- pensions holding commercial property or other illiquid assets.
The biggest risk is not just the tax. It is confusion.
Executors may not realise pensions must be investigated. Beneficiaries may think pension money is “theirs” and separate from the estate. Families may not understand why payments are delayed or withheld. Personal representatives may be exposed to liability if they distribute too early or fail to report properly.
What should you do now?
The worst option is to wait until someone dies and leave your family to untangle it.
People should review:
1. Their Will
Your Will should be up to date and should work properly with your wider estate planning.
2. Pension nominations / expression of wishes forms
These do not replace a Will, but they matter. Pension trustees often consider them when deciding who receives benefits.
3. The value of pension funds
Families need to understand whether pension wealth could push the estate into Inheritance Tax.
4. Spouse and civil partner planning
Leaving pension benefits to a spouse or civil partner may have a very different tax result from leaving them to children or others.
5. Liquidity
If Inheritance Tax may be due, where will the money come from? Cash? Investments? Property sale? Pension direct payment? This needs thought before death, not after.
6. Record keeping
Executors should not have to play detective. Keep a clear list of pension providers, policy numbers, advisers and online account details.
The blunt conclusion
This reform may raise money for the Treasury, but it will also create a heavier probate burden for ordinary families.
The Government estimates the measure may raise around £1.5 billion. For context, UK NHS expenditure was about £242 billion in 2024/25, which works out at roughly £663 million per day. So £1.5 billion is a little over two days of UK health spending.
For that, families get more forms, more chasing, more tax risk, more personal representative liability, more pension-provider bureaucracy and more pressure during the first few months after a death.
Need advice on Wills, probate or Inheritance Tax planning?
At J.J. Taylor & Co Solicitors, we advise families across Northern Ireland on Wills, probate, estate administration and Inheritance Tax planning.
If you are worried about how the pension changes could affect your family, now is the time to review your Will, your pension nominations and the structure of your estate.
Do not leave your executors to discover the problem when it is already too late.
Frequently asked questions
Will pensions be subject to Inheritance Tax from April 2027?
From 6 April 2027, most unused pension funds and pension death benefits will be brought into the deceased person’s estate for Inheritance Tax purposes.
Does this apply in Northern Ireland?
Yes. Inheritance Tax is a UK-wide tax, so the pension changes will affect estates in Northern Ireland as well as England, Wales and Scotland.
Are spouses and civil partners exempt?
Transfers to spouses and civil partners may still qualify for spouse exemption, provided the relevant conditions are met. However, the pension information may still need to be gathered and reported properly.
Who pays the Inheritance Tax on pension funds?
Personal representatives will be responsible for reporting and paying the tax. Once pension benefits vest in a beneficiary, that beneficiary may also become jointly and severally liable for the tax attributable to that pension property.
Should I update my Will because of the pension Inheritance Tax changes?
Many people should review their Will, pension nominations and wider estate planning before April 2027. The rules may affect how pension wealth passes to family members and how much tax is payable.