From April 2027, unused pension pots and death benefits will be included in an individual’s estate for inheritance tax (IHT) purposes. The Association of Taxation Technicians (ATT) has warned that this change, announced in the Autumn Budget, could increase costs and cause delays for around 50,000 families a year.
Pension pots are exempt from IHT rules, making them a popular tool for estate planning. Under the new system, personal representatives handling a deceased person’s affairs must work with Pension Scheme Administrators (PSAs) to determine the value of any unspent pension assets and allocate allowances accordingly. Each pension fund will then be responsible for paying its share of IHT before probate can be granted.
The ATT has raised concerns that these additional administrative steps will increase the time and effort required to finalise estates. Delays in obtaining probate could create financial difficulties for beneficiaries, while the added complexity may result in higher costs for professional assistance.
The ATT has called for a separate IHT regime for pensions to reduce the impact on bereaved families. With pensions playing a key role in IHT planning, it may be worth reviewing your arrangements to ensure they remain tax-efficient. While some view tax-free pension pots as a loophole, others argue they provide a vital means of passing on wealth.
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