Pension interests brought into inheritance tax from 6 April 2027

Pension interests will be brought into inheritance tax for deaths occurring on or after 6 April 2027, under sections 66 to 70 of the Finance Act 2026 (c. 11)¹. The Act states that the amendments "apply in relation to deaths, and (so far as relevant) to other transfers of value within the meaning of IHTA 1984, occurring on or after 6 April 2027"¹.

Under new section 150A of the Inheritance Tax Act 1984, a member of a registered pension scheme, a qualifying non-UK pension scheme or a section 615(3) scheme is "treated as beneficially entitled immediately before their death to property ('notional pension property')"¹. The value is calculated in steps: for each money purchase arrangement, the value of property held in a pension pot that may or must provide benefits on death, plus property not held in a pot that can reasonably be expected to be used for that purpose, less anything that may only provide an excluded benefit¹. For each defined benefits arrangement, the amounts of lump sum death benefits that must be paid or can reasonably be expected to be paid, plus scheme continuation payments, again less excluded benefits¹. In judging what can reasonably be expected, "regard is to be had (in particular) to appropriate actuarial assumptions"¹.

Notional pension property is "regarded as situated in the country or territory in which the scheme is established" for the purposes of excluded property rules¹. An "excluded benefit" is defined to include dependants' scheme pensions, certain dependants' or nominees' annuities purchased together with a lifetime annuity, and benefits payable only where the member was in employment or other work of a particular description immediately before death¹.

Liability rules are set out in new section 210. The deceased's personal representatives are liable so far as they are not already liable, and the scheme administrator is liable where a benefit has been paid in breach of section 226A or where the administrator has failed to comply with section 226B; in the latter case "their liability is limited to the amount of tax that they have failed to pay as required under section 226B"¹. Trustees of the scheme are excluded from liability¹.

New section 226A allows personal representatives, or prospective personal representatives, to give a withholding notice to a scheme administrator. While it has effect, no benefit may be paid to a person if the total already paid to them on the death exceeds 50% of their benefit entitlement, or if the payment would take it over that threshold¹. The notice lasts until it is withdrawn, until all tax and interest is paid, or "15 months after the end of the month in which the deceased died"¹. A payment that would fall due but for the notice falls due immediately after it ceases to have effect¹.

The Act also omits section 12A (pension drawdown fund not used up: no deemed disposition) and section 152 (cash options)¹. Where property passes to a spouse or civil partner, or to charities or registered clubs, the value transferred is treated as also attributable to that property¹. A deduction is allowed from the total pension interest, and the relevant amount is treated as though it were a pension paid under the registered pension scheme¹. The rate of charge is the same as the special lump sum death benefits charge¹. The Treasury may amend the £1,000 figure by statutory instrument¹.

Why it matters for households

From 6 April 2027, unused pension pots and other pension death benefits will count towards the value of an estate for inheritance tax, rather than passing outside it as they generally have done. This affects the estates of scheme members who die on or after that date, and the people who receive benefits from those schemes. Personal representatives will need to establish the value of notional pension property, and scheme administrators may be required to withhold benefits or pay tax directly. The 15 month limit on withholding notices, and the 50% threshold, set out when payments can resume. The treatment of transfers to spouses, civil partners and charities is preserved in the new rules¹.

What happens next

The changes take effect for deaths and other transfers of value on or after 6 April 2027¹. The Treasury may by regulations amend the £1,000 figure referred to in the Act¹.