Many pension scheme death benefits will fall within the scope of inheritance tax for the first time from 6 April 2027, according to analysis by Addleshaw Goddard. The change, enacted through the Finance Act 2026, could significantly affect how estates are valued and how much tax families owe when a pension holder dies.
The law received Royal Assent on 26 March 2026. It marks one of the most significant shifts in pension taxation in years.
For defined benefit pension schemes, the benefits most likely to count as part of a deceased person’s estate include lump sums paid under a guarantee period. This typically applies where the member dies within five years of starting to draw their pension.
Lump sums linked to refunds of contributions will also be caught. This applies whether the member was still paying into the scheme or had left employment but kept deferred benefits.
Money purchase pension pots face the broadest impact. The entire unused value of a member’s pension pot at the time of death will be treated as part of their estate for inheritance tax purposes.
Money purchase additional voluntary contribution pots held alongside defined benefit schemes will also be in scope.
One notable change since the legislation was first drafted is that the exemption for lump sum death-in-service benefits no longer requires the member to be an “active member” of the scheme. This means life-assurance-only members can also benefit from the exemption.
For anyone currently acting as an executor or expecting to deal with an estate after April 2027, these changes mean that pension benefits can no longer be assumed to sit outside the estate. Executors will need to contact pension scheme administrators promptly to find out what benefits are payable and whether they attract inheritance tax. The process involves formal information requests with set deadlines, so early action will be important.
HMRC published a Technical Note on 11 May 2026 setting out how the new rules will work. Draft regulations on information sharing between pension administrators and personal representatives followed on 18 May 2026.
Under the draft rules, scheme administrators must tell executors the value of any death benefit within 28 days of a request. Details of how benefits are split between exempt beneficiaries, such as a spouse, and non-exempt beneficiaries must follow within 28 days of the request or 14 days after the beneficiaries are determined, whichever is later.
Executors can also serve a “withholding notice” requiring administrators to delay paying out death benefits. A separate “payment notice” can require administrators to pay inheritance tax directly from the pension benefit before distributing it.
The Technical Note acknowledges that executors will often need to engage with pension schemes before probate has been granted. HMRC has outlined basic identity checks that administrators can accept in the meantime. Where there is a will, this may include a copy of the will, proof of identity matching the named executors, a copy of the death certificate, and a signed declaration that the executor has accepted the role.
Where there is no will, HMRC notes that existing rules on the order of priority for obtaining letters of administration will apply, though further guidance is expected.
Where pension trustees have discretion over who receives a death benefit, the chosen beneficiaries will be treated as entitled to the benefit for inheritance tax purposes at the point the trustees make their decision, not when the money is actually paid.
The government plans to finalise the information-sharing regulations in summer 2026. However, further guidance and supporting materials, including templates for withholding and payment notices, are not expected until spring 2027, just weeks before the rules take effect.