Financial planners have warned that many families will need to keep clearer records of pension arrangements because personal representatives will be required to identify pension schemes held by someone who has died and include their value when assessing an estate.
The change means certain unused pension funds and death benefits will become part of the inheritance tax system. According to financial planning firm Hymans Robertson, the full impact of the rules is not yet known because further government guidance has not been released.
Further HMRC Guidance Expected as Pension Rules Approach
HMRC has been publishing technical notes about the upcoming changes, with additional guidance planned before the new rules begin. According to Angela Davis, a chartered financial planner at Hymans Robertson, a further technical note is expected in autumn covering areas including international aspects, intestacy, charities and trusts.
The firm said that until these details are available, it remains unclear how some parts of the changes will affect pension holders and their families. Full guidance and supporting materials are expected in spring 2027.
Under the current inheritance tax system, individuals can pass on assets up to a set allowance without paying the tax. The standard allowance is £325,000, while an additional allowance of £175,000 may apply when a main residence is passed to a direct descendant. Unused allowances can also be transferred between spouses or civil partners.
Inheritance tax is charged at 40 per cent on the value of an estate above the available allowances. HMRC has said that more than 90 per cent of estates will still not pay inheritance tax, including on pension funds.
The department said it wants to help people understand how taxation of unused pension funds and death benefits will operate, adding that further guidance will be published before the changes take effect.
Pension Holders Urged to Update Records and Beneficiary Details
While the final details of the new rules are still being developed, financial planners have highlighted the additional administrative responsibilities that executors will face. According to Hymans Robertson, personal representatives will need to locate every pension scheme held by the deceased and provide valuations to include within the estate assessment.
Angela Davis advised pension holders to keep details of their arrangements in a safe place. These records should include the name of the pension provider, the plan number and a contact telephone number.
She also highlighted the need to review pension beneficiary nominations, sometimes known as an expression of wish. These forms allow pension holders to state who they would like their pension benefits to be paid to after their death.
According to Hymans Robertson, pension payments do not automatically follow instructions set out in a will, and beneficiary information can become outdated if it is not reviewed after major life events such as marriage, having children or divorce.
The upcoming changes have prompted reminders for people to keep wider estate planning documents updated. Davis said adults should have a will and review it when personal circumstances change to ensure it reflects their wishes. As the April 2027 introduction date approaches, HMRC guidance will provide further detail on how pension funds will be treated under the inheritance tax system.
