From 6 April 2027, most unused pension funds and death benefits will be treated as part of an estate for Inheritance Tax (IHT) purposes, which is a major shift in estate planning and probate responsibilities. This change, confirmed in the Autumn Budget 2024, ends a long-standing incentive to use pensions as a vehicle for passing on wealth tax-efficiently.
For families dealing with the loss of a loved one, this reform introduces new risks, obligations, and emotional pressures, particularly for the personal representatives (PRs) managing the estate. At HK Law, we understand how complex estates can become. Our expert probate and estate planning team is here to provide the support and advice needed to navigate these new rules with clarity and care.
A Complex Reform with Real-World Consequences
Under the new rules, PRs, not pension providers, will be responsible for reporting and paying any IHT due on unused pension funds. This includes gathering information from pension scheme administrators (PSAs), valuing the estate, calculating tax liabilities, and communicating with beneficiaries.
In some cases, pension beneficiaries (such as adult children or unmarried partners) will also be *jointly and severally liable* for the IHT due, a fact many will not be expecting. PRs will need to advise them accordingly, often while managing the wider responsibilities of probate.
“It’s a fundamental change in how pensions are treated on death,” says Laura Staples, Head of Private Client at HK Law. “We expect families to be surprised, and in some cases, distressed, by the added tax burden and the complex administrative tasks that come with it. At a time when emotions are already high, this reform risks making a difficult process even more overwhelming.”
The Financial Risks: Double Taxation and Payment Deadlines
In some scenarios, beneficiaries could face a double tax hit, with IHT on the pension itself, followed by Income Tax when the benefits are drawn. This so-called “double taxation” can leave beneficiaries with as little as 36% of the original pension, depending on their tax band.
The pressure doesn’t stop there. PRs are still expected to submit an IHT account and settle tax within the usual six-month deadline from the date of death, even though it may take weeks (or months) to gather all the information needed from multiple pension providers.
With complex estates, multiple beneficiaries, or significant pension wealth, the risk of late filing, penalties or underpayment increases, exposing PRs to personal liability if mistakes are made.
Why Professional Advice Matters More Than Ever
Navigating the new regime will require a forensic level of detail and a cool head under pressure. Key challenges include:
- Identifying and valuing all in-scope pension assets
- Understanding who qualifies as exempt or non-exempt beneficiaries
- Communicating joint liability obligations to beneficiaries
- Managing potential liquidity issues if funds are not readily accessible
- Amending the IHT account if values change or information is delayed
We’re here to help families make sense of these changes, avoid costly mistakes, and manage the entire probate process with expertise and empathy. Whether we’re advising the PRs, acting as PR ourselves, or supporting beneficiaries, we’re focused on giving clients peace of mind.
Our Private Client team stays at the forefront of evolving tax legislation, working closely with pension providers, accountants, and HMRC to ensure your estate is managed efficiently and in full compliance.
Long-Term Planning: Now is the Time to Review
The upcoming reforms also highlight the importance of reviewing your estate plan before April 2027. If you have significant pension wealth, particularly over £500,000, you may wish to:
- Reassess how your pensions are nominated and structured
- Consider earlier drawdown strategies
- Explore gifting or charitable nominations
- Evaluate the position of unmarried partners or non-exempt beneficiaries
What might have been a sensible pension strategy five years ago could soon create unintended tax consequences for your family.
How HK Law Can Help
Our expert lawyers are already working with clients to plan for the impact of these changes. Whether you’re reviewing your own estate or acting as a personal representative, we’re here to make sure nothing is overlooked and no one is left exposed.
At HK Law, we’re professional, approachable, and meticulous. We understand that this isn’t just about numbers, it’s about families, legacies, and doing what’s right at a deeply personal time.
To speak to our team about probate support or estate planning involving pensions, please get in touch. HK Law has offices in Blandford, Bournemouth, Crewkerne, Dorchester, Poole, Swanage, and Wareham.
