This past August, we shared an article that set out the key anticipated reforms to the IHT treatment of pensions that are due to be implemented from 6 April 2027. The changes will impact individuals holding private pensions, Personal Representatives (“PRs”), Pension Scheme Administrators (“PSAs”) and Beneficiaries.
The long-awaited Autumn Budget on 26 November 2025 provided no substantive changes to these reforms and the legislation to bring unused pensions into the scope of IHT is still expected to be implemented from 6 April 2027.
However, the Budget did set out some clarification to the process for reporting IHT due on pensions following the death of a pension holder, and the process for implementation.
The legislation to be introduced in the Finance Act 2025-26 is expected to provide further detail and clarification.
Awaiting this legislation, the key adjustments to the reforms that were announced are:
- PRs will be permitted to direct PSAs to withhold 50% of the pension fund for up to 15 months following the date of death, to retain funds for payment of IHT due on the pension fund.
- PRs and Beneficiaries are expected to be jointly liable for any IHT payable on the pension and Beneficiaries solely liable for IHT due on any future pensions that are discovered once the IHT clearance certificate has been issued to the PRs of an estate.
- PSAs will have new duties (to be confirmed) to support PRs in compiling the information required for the IHT400 and paying IHT, for example with the Pensions Direct Payment Scheme.
There continue to be concerns from professionals and those affected by the reforms about the additional burden placed on PRs and PSAs in particular, immediately following the death of a pension holder. Specifically, if there is any IHT due on the pension(s) then the IHT should be paid by the six-month anniversary of the last date of the month in which the death took place. Interest on unpaid IHT is subsequently payable at a current rate of 8%. There are great concerns that six months may not be a sufficient timeframe for all the relevant information to be compiled by the PRs for submission in the IHT400 and payment of the IHT in good time.
Individuals should take proactive steps to review their pension planning in advance of the changes. Probate professionals and PSAs should prepare themselves for the additional work required to ensure adequate resourcing. PRs, PSAs and Beneficiaries will also need to take proactive steps to work together following a death, to compile the required information for filing of the IHT400.
All who are to be affected by the reforms should stay abreast of developments in this area. Please contact the team if you or your clients have any concerns about how you or they might be impacted by the reforms.