Writing Your Will? Remember to Choose Your Executors with Care
HMRC has published fresh information on the mechanics of collecting inheritance tax (IHT) on pensions.
In the October 2024 Budget, the Chancellor announced that most pension death benefits would become potentially liable for IHT from 6 April 2027. However, it was not until March 2026 that the relevant primary legislation was passed into law. Even that is not the end of the story, as HMRC now must pass regulations to make the new rules work, then consult on and produce “detailed guidance and other supporting materials”. The final elements are not due until next spring, uncomfortably close to the April 2027 start date.
The Complications of Pension Inheritance Tax
The protracted process reflects the immense complexities in developing a tax system that works seamlessly across four moving parts:
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The Personal Representatives (PRs): Normally the will-appointed executors.
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The Pension Schemes: The administrators and trustees managing the funds.
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The Beneficiaries: Those receiving the pension death benefits, lump sums, or ongoing income.
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HMRC: The tax authority, which could potentially be demanding both IHT and income tax on the same pension benefits.
New Financial Responsibilities Placed on Executors
At the end of May, HMRC issued an extensive ‘technical note’ setting out its view of the current state of play. This highlighted the significant new responsibilities and administrative burdens placed squarely on Personal Representatives.
1. Primary Liability for Tax Delivery
The PRs will be primarily responsible for reporting on and paying any IHT due on pension benefits. However, once the pension scheme determines that an individual is entitled to a lump sum or a pension, that beneficiary also becomes jointly and severally liable. This means that if the PRs do not pay any IHT due, the beneficiary will ultimately have to step in.
2. The Right to Withhold Funds
As anyone who has experienced estate administration will know, it takes considerable time to track down a deceased person’s assets and determine their exact value at the date of death. To help cover this inevitable delay, PRs will be given the ability to request that a pension scheme withholds a portion of the payout.
| Rule Aspect | Detail & Scope |
| Maximum Withholding Limit | Up to 50% of a beneficiary’s total entitlement |
| Maximum Timeframe | A holding period of up to 15 months |
| Key Exemptions | Cannot apply to exempt beneficiaries (mainly surviving spouses and civil partners) |
| Excluded Benefits | Excludes dependants’ scheme pensions, joint life annuities, and death-in-service payments |
Time to Review Your Estate Strategy
The heavy new duties placed on PRs mean that you might wish to urgently review who you have appointed as your executors. Handling pension calculations alongside standard estate assets requires a high level of financial literacy. Furthermore, if you currently do not have a will, these looming changes to IHT give you yet another critical reason to draft one.
Secure Your Legacy with Chartwell Wealth Management
Navigating the shifting landscape of inheritance tax legislation can be daunting, but you do not have to do it alone. At Chartwell Wealth Management, we can help you review your current estate plans, assess how the 2027 pension rules impact your wealth, and ensure you choose the right people to protect your legacy.
Take control of your estate planning today. Contact Chartwell Wealth Management to arrange a personal consultation with one of our specialists.
Disclaimer: Tax treatment varies according to individual circumstances and is subject to change. The Financial Conduct Authority does not regulate wills or estate planning advice.
