For deaths on or after 6 April 2027, most unused pension funds and pension death benefits count as part of the deceased’s estate for inheritance tax, whether or not the scheme has discretion over who receives them. The personal representatives must report the pension value on the IHT400 and are liable for the tax, but they can tell the pension scheme to hold back half of each beneficiary’s benefits for up to 15 months and to pay the tax direct to HMRC.

What is changing, and from when?

Finance Act 2026 section 66 inserts a new section 150A into the Inheritance Tax Act 1984 (IHTA 1984). It treats a member of a registered pension scheme, a qualifying non UK pension scheme or a section 615(3) scheme as beneficially entitled, immediately before death, to “notional pension property” measured by reference to the scheme arrangements at that time. Section 71 of the same Act applies the change to deaths on or after 6 April 2027.

Until then the old position continues. HMRC’s guidance on inherited pensions explains that a lump sum is not usually subject to inheritance tax because payment is usually discretionary, and that executors should ask the provider whether it was. HMRC’s policy paper notes that some schemes, such as the NHS and judicial schemes, are non discretionary and are already treated as part of the estate. For a death today, in the 2026 to 2027 tax year, executors still fill in Schedule IHT409 for any pension provision, but most discretionary death benefits stay outside the taxable estate.

The nil rate band stays at £325,000 and the residence nil rate band at £175,000, frozen until 5 April 2031 according to HMRC’s February 2026 Trusts and Estates newsletter, so more estates with large pension pots will cross the threshold once pensions come in. You can see the current figures on our 2026 to 2027 rates page.

Which pension benefits stay outside the estate?

New section 150A(6) lists “excluded benefits” that are deducted when the notional pension property is valued:

  • a dependants’ scheme pension, and a trivial commutation lump sum death benefit that extinguishes a dependant’s right to one;
  • a dependants’ or nominees’ annuity bought together with the member’s lifetime annuity;
  • any benefit payable only because the member was in employment or other work of a particular description when they died, which is how death in service benefits are taken out of scope.

Separately, section 67 defines an “exempt benefit” as one whose payment makes the death transfer exempt. Section 69 extends the spouse or civil partner exemption (IHTA 1984 section 18) and the charity exemption (section 23) so that pension benefits paid to a surviving spouse, civil partner or charity carry the exemption. A pot left entirely to a spouse therefore adds value to the estate but no tax.

How is the pension valued?

Section 150A(2) sets out three steps. For each money purchase arrangement, add the value of property held in the member’s pot that may or must be used to provide death benefits, plus other property that can reasonably be expected to be used that way, then deduct anything usable only for an excluded benefit. For each defined benefits arrangement, add any lump sum death benefit that must or can reasonably be expected to be paid, and any scheme continuation payment, again deducting excluded benefits. Then total the results. Questions of what can reasonably be expected are answered using appropriate actuarial assumptions. Executors will normally depend on the scheme administrator for these figures, and HMRC’s August 2026 Trusts and Estates newsletter reports that regulations on information sharing between providers, personal representatives and HMRC were laid on 15 July 2026.

Who reports the pension and who is liable for the tax?

The personal representatives. HMRC’s policy paper states that personal representatives, not pension scheme administrators, are liable for reporting and paying any inheritance tax due on unused pension funds and death benefits. The replacement IHTA 1984 section 210 makes the personal representatives liable for tax attributable to notional pension property, alongside the people in whom the property vests, typically the beneficiaries who receive the benefits. The trustees of a registered pension scheme are not liable, and the scheme administrator becomes liable only if it pays out in breach of a withholding notice or fails to act on a payment notice.

The ordinary deadlines apply. The IHT400 is due within 12 months of the end of the month of death, and tax is due by the end of the sixth month after the death, with interest after that. HMRC’s policy paper says personal representatives will need to report the amount of tax attributable to each pension scheme, so the pension figures belong in the same account as the rest of the estate. See completing the IHT400.

Because the money sits with the scheme rather than the executors, amended section 211(3) lets personal representatives who pay tax on property vested in someone else recover it from that person if they cannot deduct it from that person’s share of the estate.

How can executors make the scheme hold back or pay the tax?

Finance Act 2026 section 68 adds two notices to IHTA 1984.

Withholding notice (section 226A)

A personal representative, or someone with reason to believe they will become one, who expects to be liable for tax on the pension can give the scheme administrator a withholding notice. While it has effect, the scheme cannot pay any beneficiary more than 50% of that person’s benefit entitlement. Excluded and exempt benefits are not caught. The notice ends at the earliest of withdrawal, payment of all tax and interest attributable to that scheme, or 15 months after the end of the month of death.

Payment notice (section 226B)

The liable person, whether the personal representatives or a beneficiary, can require the scheme administrator to pay the tax attributable to the notional pension property. The administrator must pay within 35 days of receiving the notice. The notice must specify an amount of at least £1,000 and no more than the tax for which that person is liable, or the benefits still payable. The scheme then adjusts the benefits on a just and reasonable basis. HMRC’s policy paper calls this the Pensions Inheritance Tax Payment Scheme.

What if a pension turns up after clearance?

New section 239(4A) protects personal representatives who have received a certificate of discharge: they are not liable for tax on notional pension property found later unless the failure to disclose it was due to their carelessness. HMRC’s policy paper adds that beneficiaries will generally be solely liable for tax on pensions discovered after clearance. Thorough tracing before applying for clearance is therefore the executor’s best defence.

Does income tax still apply on top?

It can. HMRC’s guidance on inherited pensions shows that most lump sums and drawdown income from a member who died at 75 or over are taxed as the recipient’s income. To limit the overlap, Finance Act 2026 section 70 inserts section 567B into ITEPA 2003, allowing a deduction from taxable pension income for inheritance tax paid on that benefit. Executors handling the deceased’s own final income tax position should read tax returns for someone who has died.

A worked example

Illustration only. Rosa dies in May 2027, unmarried, owning investments and cash of £400,000 left to her nephew and a defined contribution pot of £200,000 nominated to her niece. She owned no home, so no residence nil rate band applies. Her estate for inheritance tax is £600,000. After the £325,000 nil rate band, £275,000 is taxed at 40%, giving £110,000. Under IHTA 1984 section 265 the tax is attributed to each property in proportion to its value, so about one third (£36,667) is attributable to the pension. The executors give a withholding notice so that only half of the niece’s £200,000 can be paid out at first, then a payment notice for £36,667. The scheme pays HMRC within 35 days and the niece receives the balance.

What mistakes should executors avoid?

  • Applying the 2027 rules to a death before 6 April 2027. The date of death decides which regime applies.
  • Forgetting that a pension paid to a spouse adds to the gross estate even though it is exempt, which can affect whether an IHT400 is needed. See excepted estates.
  • Missing the 15 month limit on a withholding notice, after which the scheme can release the remaining benefits.
  • Paying the estate’s tax from other funds without a plan to recover the pension share, which leaves the residuary beneficiaries bearing tax on someone else’s inheritance. Our guide to paying inheritance tax before probate covers the funding options.
  • Treating death in service cover as taxable. Benefits payable only because the member was in work are excluded.

Accountants who act as executors take on these duties personally, as explained in accountants as executors and trustees.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.