Inheritance Tax Upcoming Changes to Pensions

September 23rd 2025

In October 2024, the Chancellor announced the reform of Inheritance Tax (IHT) with the aim to ‘help deliver fairer treatment of inherited wealth’

How will this affect you?

From 6 April 2027, most unused pension funds and death benefits will be included in the value of a person’s estate (for IHT purposes), regardless of whether pension scheme administrators or scheme trustees have discretion over the payment of any death benefits. This will exclude any death benefits passing to a surviving spouse or civil partner and registered charities, as well as any death in service benefits payable from a registered pension scheme.

The proposed changes will therefore increase IHT liabilities for estates containing inheritable pension wealth and reduce the amount received by beneficiaries.

The government estimates that, of around 213,000 estates with inheritable pension wealth in 2027 to 2028, 10,500 estates will have an IHT liability where previously they would not.
Approximately 38,500 estates will pay more IHT than would previously have been the case.
The average IHT liability is expected to increase by around £34,000 when pension assets are included in the value of the estate.

Following the initial consultation period in January 2025, the government proposed that pension scheme administrators would be responsible for reporting and paying IHT on the pension element of an estate. However, this raised concerns about potential delays in finalising estates.

A formal response to the technical consultation was published in July 2025 confirming that Personal Representatives (e.g. Executor of the deceased’s Will, or Administrator) would be liable for reporting and paying any IHT due on unused pension funds and death benefits (from 6th of April 2027), rather than the scheme administrators.

Pension scheme administrators will however have a duty to support Personal Representatives in paying inheritance tax on pensions, including sharing information in relation to all pension benefits and communicating the potential tax consequences of decisions to members and their beneficiaries. They will also have to update their systems to offer the Pensions Inheritance Tax Payment Scheme.

Personal Representatives of the deceased’s estate are to be liable for reporting and paying any IHT due on unused pension funds and death benefits. The representative will need to collect and share information from all the deceased’s pension schemes and pension beneficiaries, including reporting the amount of tax attributable to each pension scheme. Beneficiaries may need to decide how and when IHT should be paid on their benefits.

Head of Advice Jess Wilkinson comments “For a long time, pensions have been a means to pass wealth to beneficiaries free of IHT. The changes proposed from April 2027 represent a major shift in financial planning and could create significant tax liabilities.

In a recent client survey, we asked how our clients feel about the Chancellor’s plan to include unused pension funds within Inheritance Tax (from April 2027). This provoked a strong reaction, including 66% (of those surveyed) saying it was unfair and that they would actively change their behaviour to mitigate the tax. Several clients mentioned drawing down funds earlier, gifting assets, or seeking new planning strategies.

Professional advice is now more important than ever – whether you are reviewing drawdown strategies, exploring gifting opportunities, or considering protection options. With the rules evolving, staying informed is essential for your future and that of your loved ones.”

If you would like to find out more about Active Chartered Financial Planners, or speak to someone about your future, get in touch by:

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Email: info@activefp.co.uk
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Please note, this is draft legislation and subject to change.

Source: Inheritance Tax on unused pension funds and death benefits – GOV.UK

‘The Financial Conduct Authority does not regulate taxation advice’