There is a growing chorus of professional voices calling on the government to reconsider the implementation of inheritance tax (IHT) proposals regarding the unused pension funds held by the deceased on death.
From April 2027, under the Finance Bill 2025 – 2026, the value of unspent pension assets will be included in the value of an estate when calculating the IHT liability of an estate.
Some people might question the fairness of this proposal that will potentially affect 49,000 estates in 2027/2028 (the first year of implementation).
IMPLEMENTATION PROBLEMS
Putting aside the fairness, or otherwise, of the proposal, several professional bodies, such as the Law Society of England & Wales and the UK House of Lords committee, have raised concerns about the proposed burden placed on Personal Representatives (PRs). For deaths after 6th April 2027, PRs will be responsible for liaising with Pension Scheme Administrators (PSAs) to request the value of the pension and calculating each pension’s proportionate share of any IHT due. Obviously, the more pensions an individual held at death, the more complicated it becomes for the IHT to be calculated.
Once contacted by the PRs, the PSAs have 30 days to respond with a valuation and provide the PRs with the details of the beneficiaries entitled to the pension death benefits, which might differ to the beneficiaries entitled to the estate.
Collating the value of the deceased’s pension or pensions, details of the beneficiaries of the pension and calculating the proportionate share of IHT owed by each pension is an additional burden on the PRs. Despite this additional complexity and administration in estates where IHT is due- it still needs to be paid within 6 months.
PRs will need to calculate the IHT and then make arrangements for the IHT attributable to the pensions to be paid from the estate or paid by the Pension Scheme or the pension beneficiaries paying directly either from their own funds or from their inherited pension funds.
It is clear that the administration associated with PRs now having to liaise with PSAs regarding potentially taxable pension funds will greatly increase the pressure on PRs in the months following the death.
Many PRs will also feel very uncomfortable about being responsible for calculating and paying the IHT on assets that are outside their control and will still be distributed by the PSAs.
EXPERT ADVICE FOR PERSONAL REPRESENTATIVESÂ
Whilst the spotlight is currently on the difficulties PRs might face when dealing with unused pension funds, acting as a PR of an estate has always been an onerous responsibility. Â However, the need for PRs to seek legal advice to ensure the IHT position of an estate is accurately reported, and the estate is correctly distributed, is only increasing due to more and more estates becoming subject to IHT.
If you are an executor of a Will or an administrator of an estate where there is no Will, and you would like professional and personable legal advice then please get in touch.
