IHT on Pensions Pushing Ahead
29th July 2025
IHT on pensions pushing ahead, more burden placed on personal representatives.
On 21 July the Government released draft legislation on the changes to Inheritance Tax (IHT) in bringing unused pension funds into the charge to IHT from 6 April 2027.
These changes include both UK registered pension schemes and certain non-UK pension schemes, called qualifying non-UK pension schemes (QNUPSs). Lump sum ‘death in service’ benefits will continue to be exempted from IHT.
I first covered this in my blog in November on the double tax charge that may occur due to these changes which can be read here: https://whitingsllp.co.uk/up-to-67-tax-on-pensions/. This is still very relevant and nothing has changed on this aspect, however some administration changes now announced are unwelcome news for personal representatives.
How Does The Draft Legislation Differ From The Initial Consultation?
The initial consultation into these changes suggested pension scheme administrators (PSA) would be responsible for reporting and paying this IHT charge, however the draft legislation confirms a change to this. The administrative burden of calculating and paying any IHT due is to fall on the personal representatives of the deceased, with the scheme administrators only being liable to pay the IHT if specifically requested by the relevant beneficiary and if the amount due is at least £4,000. Such payments will not be subject to Income Tax, thankfully. But if the pension beneficiary does not direct the PSA to pay, they may end up paying Income Tax on the benefits they receive to settle the IHT. In this scenario, pension beneficiaries will need to contact HMRC to request a refund of Income Tax.
Furthermore, payment of IHT will still be required within 6 months of death, which is the usual IHT deadline, regardless of the complexity of the new rules. Often the most straight forward estates can struggle to meet this 6 month deadline and it was hoped there would be an extension of this deadline.
The treasury has confirmed that ‘These changes are expected to have a significant operational resourcing impact on HMRC’ (Inheritance Tax on unused pension funds and death benefits – GOV.UK). In a current climate of HMRC already being over stretched this is also not welcome.
Will Anything Else Change?
With 20 months still to go before these changes come into effect, and the draft legislation under consultation until 15 September, there could be further changes to the above. But it seems the IHT charge on pensions will remain, but I hope the administration of this is considered further to reduce the burden on personal representatives.
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For information or advice regarding Inheritance Tax or Probate & Estate Administration, please contact either myself or your local Whitings office today.
Disclaimer - All information in this post was correct at time of writing.
