HM Revenue & Customs (HMRC) has confirmed that executors will be able to ask pension schemes to hold back up to half of what each non-exempt beneficiary is due while an inheritance tax (IHT) bill is being settled.
The detail appears in HMRC’s second technical note, published on 27 August 2026. The underlying change is already law under the Finance Act 2026 and applies to deaths on or after 6 April 2027.
A withholding notice can remain in place until 15 months after the end of the month in which the pension holder died. It can be withdrawn sooner once the position is clear.
While a notice is in force, the scheme must normally limit payments to no more than 50% of each affected beneficiary’s entitlement. This is designed to help executors avoid having to fund the pension-related tax from other estate assets before the pension money is available.
Benefits passing to a spouse, civil partner or registered charity are generally exempt and cannot be held back under this process. Death-in-service benefits paid from a registered pension scheme, and certain dependants’ scheme pensions, are also outside the new IHT rules.
Executors or beneficiaries will also be able to ask the pension scheme to pay the tax directly to HMRC through the Pensions Direct Payment Scheme, where the relevant amount is at least £1,000. The scheme will normally have 35 days to make the payment. Pension schemes must respond to specified basic information requests from executors within 28 days.
IHT is usually charged at 40% on the part of an estate above the available tax-free allowances. The standard nil-rate band is £325,000 and, where a qualifying home passes to direct descendants, a residence nil-rate band of up to £175,000 may also be available. Unused allowances can sometimes transfer between spouses or civil partners, although the residence allowance tapers for estates worth more than £2 million. These thresholds are currently fixed through the 2030/31 tax year.
HMRC’s November 2025 impact assessment estimated that around 213,000 estates would include pension wealth in 2027/28. It expected about 10,500 estates to pay IHT that would not otherwise have been due and around 38,500 to pay more, with an average increase of approximately £34,000.
HMRC has said a third technical note is expected in autumn 2026. It should provide more detail on the interaction between IHT and income tax, as well as international issues, intestacy, charities and trusts. Full guidance, supporting materials and interactive tools are expected by spring 2027. At the time of writing, that further note had not yet been published.
What this could mean for your estate
Many families have treated pensions as the last savings to draw on because unused funds could often pass to beneficiaries without IHT. From 6 April 2027, that may no longer be the most suitable approach.
Most unused pension funds and pension death benefits will instead be added to the estate for IHT purposes. Executors will be responsible for reporting and paying the tax, while beneficiaries can also be liable for tax linked to the pension benefits, they receive.
If the pension holder dies aged 75 or over, beneficiaries may also pay income tax when they take money from the pension. The IHT and income tax rules can therefore overlap. HMRC has said it will provide further detail, so this part of the position may become clearer before April 2027.
There is still time to prepare. A useful starting point is to check your pension nominations; make sure your will reflects your wishes and look at your pension alongside the rest of your estate rather than in isolation. It is important not to make withdrawals or gifts simply because the rules are changing; the right choice will depend on your income needs, tax position and family circumstances.
At Insight, our financial planners can help you understand the possible tax position and explore ways to pass on wealth that feel right for you and your family. If you would like to review how the change may affect your plans, please get in touch.
FAQ
When do the new rules start?
They apply where the pension holder dies on or after 6 April 2027. If someone dies before that date, the current rules apply even if the pension benefit is paid later.
Will every pension be included?
Most unused pension funds and pension death benefits will be included, but important exclusions remain. These include qualifying death-in-service benefits and certain dependants’ scheme pensions. Benefits passing to a spouse, civil partner or registered charity are generally exempt from IHT.
Does this mean my family will pay 40% tax on my whole pension?
Not necessarily. The pension value will form part of the wider estate calculation, and IHT is generally charged only on the amount above the available allowances after exemptions and reliefs have been considered. The result will depend on the value and make-up of the whole estate.
Should I change my pension nomination?
It is worth checking that your nomination still reflects your wishes but changing it may not remove the pension from your estate for IHT from April 2027. Any decision should be considered alongside your will, other assets and family circumstances.
Could beneficiaries pay both inheritance tax and income tax?
Potentially, yes. IHT may apply when the pension is included in the estate, while income tax may apply when a beneficiary takes pension benefits, particularly where the member died aged 75 or over. HMRC is expected to publish further detail on how the two taxes will interact.
What should I do now?
Start by reviewing your pension nominations, will and wider estate plan. Avoid making rushed changes: your pension is first and foremost there to support your retirement, and any decision should take account of your future income needs as well as tax.
Sources and further reading:
HMRC, Technical note 2: Further information on Inheritance Tax and Pensions (27 August 2026)
HMRC, Inheritance Tax — unused pension funds and death benefits (26 November 2025)
Inheritance Tax thresholds and interest rates – GOV.UK
Finance Act 2026
The Registered Pension Schemes (Provision of Information) (Miscellaneous Amendments) Regulations 2026
Disclaimer: Information is based on publicly available data and government announcements at the time of writing (October 2026) and may be subject to change.
Risk statement: A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available.