UK families and executors could face an “administrative time-bomb” over incoming changes to the inheritance tax (IHT) treatment of pensions, DMH Stallard has warned.

The law firm noted the reforms, due to apply from 6 April 2027, will bring most unused pension funds and death benefits into the deceased person’s estate for IHT purposes.

DMH Stallard warned that the change could create significant practical difficulties for personal representatives, including executors and administrators, who are responsible for handling estates.

It said the six-month statutory deadline for paying IHT could clash with slow pension valuations, complex administrator processes and potential disputes between beneficiaries.

For many years, pensions have been viewed as a tax-efficient way to pass wealth between generations, as unused pension funds have generally sat outside the IHT net.

However, DMH Stallard argued the 2027 reforms would “completely disrupt” this approach, with estates that previously sat within available tax-free thresholds potentially facing new IHT bills if the deceased leaves behind an untouched pension pot.

The firm explained that if pension providers are unable to provide valuations to personal representatives within 28 days, estimated values may need to be used, potentially forcing executors to submit corrective accounts to HMRC later and adding further work to the estate administration process.

DMH Stallard also highlighted the risk that personal representatives may issue a withholding notice, preventing pension schemes from distributing up to 50 per cent of the pot while the tax liability is calculated.

The firm warned that this could leave some beneficiaries without access to funds they may urgently need.

It also suggested that disputes could arise when those inheriting the pension differ from those inheriting the main estate under the will, particularly if there is disagreement over who should pay the tax and how.

The risk could be greater where the pension includes illiquid assets, such as property, which may not be easily sold to meet the IHT liability.

DMH Stallard partner, Rhiannon Winter, said: “The six-month window to pay inheritance tax and avoid interest is already tight for grieving families who are dealing with a funeral and immediate loss.

“Factoring in complex pension trails, 28-day provider response windows, and potential disputes makes this timeframe incredibly restrictive.

“The government rejected requests from representative bodies to extend this timescale, meaning personal representatives face unprecedented compliance risks.”

Winter stressed that the reforms should prompt families to seek specialist advice, both when administering estates and ahead of the changes coming into force.

“If there was ever a reason to seek specialist legal guidance when administering an estate, or to engage in proactive lifetime gifting and estate planning before 2027, this is it,” she added.

Notably, a recent survey found that almost one in three (32 per cent) people had no idea how upcoming changes to pensions and IHT would affect them.

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