HMRC has published further details on how the new regime for pensions and inheritance tax (IHT) will operate from April 2027, although concerns have been raised that schemes are being left with too little time to prepare.

In a technical note, HMRC confirmed that most unused pension funds and pension death benefits will be brought within the value of a deceased person’s estate for IHT purposes from 6 April 2027.

The note also outlined the expected implementation timetable, including plans for further consultations and draft regulations later this year, while final guidance and supporting materials are not expected until spring 2027.

Under the new regime, a personal representative (PR) will be required to identify all of a deceased member’s pension arrangements and contact each scheme or provider to obtain details of the value of the pension rights and the intended beneficiaries.

The PR will then combine this information with the rest of the estate and use a new HMRC online tool to determine any IHT liability.

Pension schemes may also be instructed to withhold up to 50 per cent of pension benefits until any tax due has been settled.

The HMRC note stated that withholding powers should only be used where the PR has “reason to believe” IHT may be due, although HMRC expects notices to be often issued early in the process.

The technical note also confirmed that death-in-service benefits will remain excluded from IHT, although schemes will still need to report them to HMRC.

In addition, HMRC said it would be for employers, schemes and sponsors to determine whether members on career breaks, long-term sickness absence or supported redundancy periods qualify for death-in-service treatment.

LCP principal, Tim Camfield, said the latest update provided some reassurance for bereaved families.

“There is helpful clarity here for bereaved families that half of the pension should generally be able to be paid out quickly,” he stated.

“Pensions have often been a vital source of income for families following a death, as they are outside the estate, so that they can be accessed quickly.

"The estate – and from April 2027 the other half of the pension too – can often be in limbo for far too long for beneficiaries.”

However, Camfield warned that schemes may struggle to implement the changes in time for the April 2027 deadline.

“But we have concerns about the impact of further guidance being issued in spring 2027, just weeks before actual cases begin to arise,” he continued.

“HMRC’s consultative approach is welcome, but time is running out for HMRC to give schemes the detailed information which they will need to implement a new system which starts in less than a year’s time.”

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