Government abandons PSA-led model for Inheritance Tax on pensions

HM Revenue & Customs has decided not to make pension scheme administrators (PSAs) liable for reporting and paying Inheritance Tax on unused pension funds and death benefits, according to a consultation response published on 21 July 2025¹. Instead, personal representatives (PRs), who already administer the rest of an estate, will be liable from 6 April 2027¹.

The proposal had been set out in a technical consultation that ran from 30 October 2024 to 22 January 2025, which received 649 written responses and included 9 workshops with pensions and tax professionals¹. The government said the scale of the impact on PSAs and beneficiaries became fully apparent during the consultation¹.

Under the PSA-led model, respondents said administrators would likely have paid 40% of the value of unused funds or death benefits on account, to avoid late payment interest from the six-month deadline, which could have delayed payments to beneficiaries¹. The government said it does not intend to change the six-month deadline under the PR-led process¹.

The reforms bring most unused pension funds and death benefits into the value of a person's estate for Inheritance Tax from 6 April 2027¹. HMRC estimates that, of around 213,000 estates with inheritable pension wealth in 2027 to 2028, 10,500 estates, or around 1.5% of total UK deaths, will become liable for Inheritance Tax where they would not previously have been, and around 38,500 estates will pay more than before¹. It said fewer than 10% of estates annually are forecast to have an Inheritance Tax liability in the coming years¹.

Death in service benefits payable from registered pension schemes will be out of scope of Inheritance Tax from 6 April 2027, whether the scheme is discretionary or non-discretionary¹. This brings non-discretionary schemes currently in scope, such as the NHS and other public sector schemes, out of scope¹.

PSAs must tell PRs the value of the pension for Inheritance Tax purposes within four weeks of receiving notification of the member's death¹. Pension beneficiaries become jointly and severally liable for any Inheritance Tax due on unused pension funds and death benefits to which they are entitled from the point at which they are appointed¹.

Why it matters for households

The change affects estates with unused pension funds or death benefits where Inheritance Tax is due, from 6 April 2027. Because liability stays with personal representatives, the reporting and payment process runs alongside the rest of the estate rather than through the pension scheme. HMRC said more than three quarters of the estimated 213,000 estates annually with inherited pension wealth have no Inheritance Tax liability, and that in more than half of cases the pension component makes up less than 5% of the net value of the estate¹. It also acknowledged that a small number of estates will not have sufficient liquid funds within the wider estate to pay the Inheritance Tax due on the pension component¹. Beneficiaries can become jointly and severally liable for the tax from the point they are appointed¹.

What happens next

Draft legislation was published alongside the response¹. HMRC said it will introduce a new digitalised Inheritance Tax service in the 2027 to 2028 tax year, and will continue working with industry experts to develop the PR-led process, publishing further guidance and tools ahead of implementation in April 2027¹.