Pension and Inheritance Tax changes from April 2027: what it could mean for probate disputes
From 6th April 2027, significant changes to how pensions are treated will come into force. For the first time, most unused pension funds and certain pension death benefits will be included in the deceased’s estate for Inheritance Tax (IHT) purposes.
These changes could have a significant knock-on effect in contentious probate, particularly where there is a dispute about the value of an estate, the identity of beneficiaries, or the deceased’s intentions concerning their pension.
In this blog, our contentious probate solicitors explain what this could mean for disputed estates.
Why are pensions becoming more important when valuing an estate?
Pensions will now be part of the wider estate administration, not something that sits to one side. This is very different to how things currently operate: many discretionary pension arrangements can pass to nominated beneficiaries without forming part of the deceased’s estate for Inheritance Tax purposes. From 6th April 2027, that distinction will largely disappear.
For deaths occurring on or after 6th April, the value of most unused pension funds and relevant death benefits will be taken into account when determining the value of the estate for IHT purposes.
This means that a pension which previously appeared to sit outside the estate may become highly relevant when calculating the overall inheritance available and the tax payable.
Why pensions may become a focus point in probate disputes
These changes could create additional areas of dispute, whether a beneficiary is aware of the changes or not. For example, a family may disagree about whether the deceased intended their pension to benefit a particular child, partner or other beneficiary. Although pension scheme trustees may retain discretion over the payment of death benefits, the fact that the pension is now relevant for Inheritance Tax purposes may make the pension arrangements an important part of the wider estate administration.
Where disputes may arise
- What was the pension worth? Beneficiaries may disagree over the value of pension benefits at the date of death.
- Who bears the tax burden? Disputes over who should ultimately carry the economic burden of IHT; for example, the pension recipient or the beneficiaries of the rest of the estate.
- Did the wishes reflect what the person wanted? Questions may arise as to whether an expression of wishes accurately reflected the deceased’s intentions.
- Was there undue influence? Allegations that a beneficiary pressured the deceased over a nomination.
- Did they have capacity? Whether the person had the mental capacity needed when making or changing a nomination.
- How does the pension fit with the Will? The relationship between pension benefits, the Will and wider estate planning, including where the two point in different directions.
These issues could make information held by pension providers and scheme administrators increasingly important in contentious probate claims.
Why information from pension providers matters
The April changes mean pensions should increasingly be considered as part of the overall contentious probate picture rather than treated as entirely separate from the estate.
Where a dispute arises, practitioners, such as pension providers and finance advisors, may need to consider not only the Will and assets passing through the estate, but also pension nominations, scheme correspondence, expressions of wishes and the circumstances in which those nominations were made or amended.
These pension reforms therefore have the potential to bring pension arrangements much more firmly into the spotlight in estate disputes.
What you and your family can do now
This is a significant shift in the relationship between pensions and Inheritance Tax. Most estates will still not face an IHT liability, but HMRC estimates that around 10,500 estates in 2027/28 could become liable where they would not previously have been. A further 38,500 estates are expected to pay more tax than under the previous rules.
If you’re planning your estate, it’s worth remembering the following:
- Review your Will and pension nominations together with your personal representatives/ executor(s)
- Keep clear records of your decisions and intentions
- Take legal advice early if your estate is large or your family situation is complicated
Read more about how to prepare for the upcoming pension and IHT changes here.
Further information
Navigating grief and the practicalities of losing a loved one is hard enough without having to contemplate a dispute over their Will or estate. Our contentious probate solicitors advise clients across the UK, specialising in Will, estate, and Trust disputes.
Call 0117 325 2929 or fill out our enquiry form.
