Pensions and Inheritance Tax: what families need to know before April 2027
Currently, if you die and your pension(s) still have money left in them, they can normally be passed on to your beneficiaries. This money is not usually affected by Inheritance Tax (IHT). However, from April 2027, this will change for some people.
In this blog, our probate solicitors look at the upcoming changes to pensions and IHT, and what they mean for executors and beneficiaries.
What’s changing in April 2027?
Currently, most unused pension pots sit outside a deceased person’s estate and are unaffected by Inheritance Tax.
On 6th April 2027, this changes. Most unused pension funds and most death benefits will count towards the value of an estate. If the total amount is over the IHT threshold (currently £325,000), 40% tax can apply to the portion above it.
Pensions left to a spouse or civil partner, or to a charity, should stay exempt.
How the new pension rules affect executors
Under the new rules, the executor (the person dealing with the estate, known as the personal representative) will be responsible for reporting and paying any IHT due on the pension.
If you are an executor, this means you will need to:
- Ask each pension provider for a valuation
- Find out who the pension is being paid to
- Work out whether any IHT is due
- Make sure the tax is paid on time, which is usually within six months of the date of death
This is additional admin, and an example of how the value of asking a solicitor to handle the probate process for you cannot be underestimated. A lawyer can help you to trace every pension, work out how much IHT is due, deal with pension providers and HMRC and make sure that deadlines are met. Read more about the benefits of instructing a solicitor for probate here.
My loved one has already died. Does this affect us?
No. The pension and IHT changes only apply where someone dies on or after 6th April 2027.
What if I get it wrong?
Executors can be personally liable for mistakes, late payments or missing assets. This is one of the main reasons to take legal advice, and a way to avoid a claim against you or the estate.
HMRC is still publishing details on how all of this will work, so it is an area where up-to-date advice matters.
What to think about if you’re planning your estate now
If you’re thinking ahead about your own legacy, it’s worth reviewing your Will and pension nomination forms. It’s also a good idea to keep a paper trail of any decisions or changes. You should also consider speaking to a financial planning advisor.
An estate planning solicitor can help you plan for the future while taking IHT into consideration, whether that’s writing or reviewing your Will or creating a Trust.
How we can help
Dealing with the practical side of a death is hard enough without new tax rules to think about. If you have lost someone close, or you have been named as an executor and are wondering what that might involve, you don’t need to work it all out alone.
Contact our specialist team now by calling 0117 325 2929 or fill out this form, and we will be in touch.
