Article New material from HMRC on pensions and IHT: key update for advisers

Not a moment too soon, technical details are now starting to emerge from HMRC adding much-needed substance to the provisions of the Finance Act 2026, legislating to include the value of unused pensions in estates for IHT (inheritance tax) purposes for deaths on or after 6 April 2027. Among the latest items released:

• Draft provision of information regulations introducing new duties for pension scheme administrators (PSAs) and personal representatives (PRs) and prospective PRs to exchange information at various times following the death of a scheme member.
• Draft regulations requiring PSAs to inform HMRC of any lump sum death in service payments paid via a new event reporting requirement and amending existing requirements for PRs to report any lump sums exceeding the available LSDBA to HMRC.   
• Useful guidance on the process PSAs may adopt to verify the identity of the PRs and prospective PRs, covering situations where there is a valid will in place and the named executor(s) is willing to act and other scenarios, including intestacy.  
• A lengthy technical note giving answers to common questions raised in the consultation process and detail on withholding and direct payment notices, including information requirements, deadlines and disclosure between PSAs, PRs, beneficiaries and HMRC.  

In this article, we explore:

• The evolving role of personal representatives
• Identifying pension arrangements
• Information requirements and verification
• Withholding and direct payment notices
• Client reviews and planning considerations

The evolving role of personal representatives (PRs)

Taken together, the new IHT and pension provisions add an additional layer of complexity to the already burdensome role of PRs, responsible for administering the estate and reporting and paying any IHT liability arising within six months of the end of month of death. Even with promised HMRC guidance, notice templates and interactive tools, the role of PRs will become more demanding from 6 April 2027.

Whilst the value of any unused pension will simply become another asset that needs to be included by the PRs in the estate IHT calculations, many clients do not hold their pension savings in a single scheme but rather in a series of pension plans they’ve built up over the course of their working lives. Perhaps a mix of legacy plans, a workplace scheme and often SIPP-style investments held on a digital platform – each with their own processes, death benefit options and information requirements.

Identifying pension arrangements

Identifying all pensions from which a death benefit may be payable will be a difficult task for PRs especially if the scheme member didn’t have a financial adviser, unless they have left clear records of where to find scheme details, addresses and reference numbers.

This is something that should be encouraged if benefits are to continue to be held separately. Regrettably, the government has resisted calls for PRs to be given delegated access to information held on the Pension Dashboard to help identify all pensions in existence (uncrystallised pensions at least) that may not otherwise be included in the personal records of the deceased.

Accessing basic information

Despite being prior to any Grant of Representation, the PRs and prospective PRs will be entitled to request basic information from the PSAs comprising of a valuation of the ‘notional pension property’ (broadly the amount available under the scheme to provide death benefits) and confirmation of the split of benefits between exempt and non-exempt beneficiaries.¹

HMRC suggests PRs and prospective PRs include the name of any surviving spouse or civil partner and their residence status with their initial request to help PSAs determine the split between exempt and non-exempt beneficiaries more quickly. The valuation (or an estimate if not possible) must be provided within 28 days. The split should also be provided within 28 days if possible or within 14 days of the beneficiaries being determined, if later. 

Verification of PRs and prospective PRs

Before any information can be released, however, the identity of the PRs and prospective PRs will have to be verified to the satisfaction of the PSAs to ensure the parties making the request are entitled to receive the information. The latest guidance gives PSAs an idea of what evidence HMRC expects schemes to require to verify identity, although specific requirements are likely to vary between schemes.

Where there are to be multiple PRs who are acting jointly rather than independently, things may take a little longer while the PSAs verifies each of their identities, provides information to each party and seeks collective agreement to any withholding and direct payment notices that are subsequently received.

Inevitably, cases where there is a valid will in existence and a named executor who is able and willing to act will proceed quicker than other cases where the named executor is unwilling and seeks to renounce, or where there is no valid will in existence and prospective PRs are forced to apply to the court to be appointed. Research from the Money and Pension Service in 2025 suggests that fewer than 50% of UK adults have a valid will in place, so delays in verification, appointment of PRs and slow release of information are likely to be commonplace.²

Once the verification process is complete, the valuation has been received together with the split between exempt and non-exempt beneficiaries, the PRs will use this information to determine if an IHT account is likely to be required. If so, the PRs will be entitled to seek further information from the PSAs on the specific beneficiaries chosen and the amounts awarded to each to be able to calculate any IHT due on the estate in general and the notional pension property in particular. Assuming the PRs or prospective PRs have already been verified at the initial stage (and no changes have occurred) the PSAs will not have to repeat the identity verification process. 

 

Withholding notices

If the PRs or prospective PRs believe that IHT may be due in relation to the notional pension property, they may submit a notice to the scheme(s) instructing the PSAs to withhold up to 50% of the death benefits awarded to non-exempt beneficiaries for a period of up to 15 months from the end of month of death. This is to make sure there are sufficient funds retained in the pension to pay any IHT arising together with any interest that becomes due for late payment. Where there are multiple pensions held, the PRs will need to decide whether all schemes should receive a withholding notice or if more appropriate for individual schemes. Any IHT arising on notional pension property will be proportionate between the schemes depending on their respective values and the beneficiaries chosen by the PSAs. It's not possible for the PSAs of one scheme to pay the whole IHT charge applying to the total of notional pension property held in multiple schemes.   

Direct payment notices

Once the value of the estate has been calculated, the relevant allowances deducted and the IHT liability determined, if an IHT charge arises on the notional pension property the PRs must notify the PSAs and the beneficiaries. At this stage the PRs may decide to submit a direct payment notice to the scheme requiring the PSAs to pay any IHT charge of £1000 or more from the scheme to HMRC (beneficiaries also have the power to submit such a direct payment notice).

The PSAs will be obliged to acknowledge receipt of any such notice, confirm its validity or otherwise and pay the amounts specified within 35 days otherwise the PSAs will become jointly liable. If there are multiple pensions held and IHT charges arising under each scheme then multiple direct-payment notices may be required if the PRs choose for the charges to be made direct from each scheme to HMRC.  

Benefit settlement

After IHT has been paid, and any withholding notice has been withdrawn or expired, the PSAs can move to pay out any remaining death benefits to the chosen beneficiaries. Death benefits may or may not be subject to income tax on the beneficiaries depending on the circumstances and this may require further involvement by the PRs. For example, if the member died before age 75 and a lump sum(s) is paid from uncrystallised funds or funds that crystallised on or after 6 April 2024 within 2 years of death and the total exceeds the remaining LSDBA, the PRs will be responsible for reporting this to HMRC. This needs to be done within 13 months of death or if later 30 days of the PRs becoming aware that the LSDBA has been exceeded – with full information on the amounts paid, beneficiary details and confirmation of whether IHT was deducted. HMRC will then pursue the beneficiaries for income tax on the excess amounts over LSDBA.

Clearance

PRs will be able to apply to HMRC for a certificate of discharge when they believe they have identified all known assets, the IHT account has been completed and any IHT paid. Having done so, the PRs will not be held liable for any IHT arising on any new assets that may be identified thereafter. The PRs will still be expected to notify HMRC and correct the IHT account in these circumstances but would not be personally liable if clearance has been obtained. Instead HMRC will pursue the beneficiaries for any outstanding tax.  

New world

Clearly, from a PR perspective the new IHT provisions applying to unused pensions from 6 April 2027 are materially different from now where most death benefits are settled under the PSAs discretion and are generally not included in the estate for IHT.

Moving from a position where PRs are not actively involved in benefit settlement other than being asked to provide relevant information to help the PSAs exercise their discretionary powers, to a new position where the PRs will also be required to identify all pensions, seek valuations and details of beneficiaries from PSAs and assess the suitability of withholding and direct payment notices and their submission, means that the role of PR will be considerably more demanding going forward. Some clients may consider the appointment of specialist professionals to fulfil the PR role due to the additional responsibilities, pressing deadlines and added complexity.  

Client reviews and planning considerations

Clients who are likely to be affected by the IHT changes from 6 April 2027 should be seeking specialist advice now on their total assets and reviewing what action, if any, needs to be taken with their pension savings. Our related guide outlines practical steps advisers can take now to help clients prepare for these changes, including ensuring assets are clearly documented and accessible.

Clients who have benefits held in multiple pensions should spare a thought for the plight facing the individuals who may be appointed to the role of PR and whether there is an opportunity to tidy up their financial affairs as part of an overall review. For every separate pension held there will be multiple administrative tasks, multiple verification exercises, multiple valuation and beneficiary detail requests and multiple withholding and direct payment notices, all adding to likelihood of delays and possible missed reporting and payment deadlines along with interest being payable for the late payment of tax.

There may be a number of valid reasons for retaining multiple pensions where there are valuable protections that may be lost if a transfer is made, for example where there is protected tax-free cash, a protected pension age 50 or below, guaranteed annuity rates and suchlike and so any prospect of consolidation should be based on detailed financial advice and positive  recommendation to proceed. In many cases, there may be no identifiable obstacle to pension consolidation and fewer, larger pots may be easier for the client to be able to identify, monitor and update as circumstances or their objectives change. And prospectively much, much easier for their appointed PRs when their time comes.

 Checklist for clients likely to be affected by IHT and pension changes:

• Is there is a valid will in place?
• Are the named executors aware they have been appointed, clear on the new responsibilities applying from 6 April 2027 and willing to act?
•  Is it appropriate to consider a specialist professional to perform the PR role?
• Are all pensions and other assets documented and clearly identifiable to PRs?
• Have any pension savings held in multiple pension schemes been reviewed to assess their suitability to meet client needs and objectives?
• Has financial advice been sought on the pros and cons of any pension consolidation? 
• Whether retaining multiple pensions or consolidating the benefits, are suitable death benefit nominations in place, regularly reviewed and updated?

Bringing it all together

As planning becomes more complex, having the right support and tools can make a real difference. Bringing clients’ assets together, where appropriate, can provide a clearer overall view and may support more effective long-term planning. Find out more about client consolidation on ARC.

This information is based on our understanding of current taxation law and HMRC practice, which may change.