The changes are expected to affect families inheriting pension wealth, although most estates will continue to have no inheritance tax liability. Government estimates suggest that 10,500 estates will become liable for the tax for the first time, while another 38,500 will face higher payments under the revised arrangements.
Thousands of Estates Face Higher Inheritance Tax Bills
According to HM Revenue and Customs (HMRC), around 213,000 estates are expected to contain inheritable pension wealth during the 2027-28 tax year. Of these, 10,500 will become liable for inheritance tax where previously no payment would have been required.
A further 38,500 estates will pay more inheritance tax than under the existing arrangements. The average inheritance tax bill is expected to increase by approximately £34,000 when pension assets are included in estate calculations.
The Government has acknowledged that these estimates do not account for potential changes in people’s financial behaviour following the announcement. As a result, the figures should be regarded as an upper limit rather than a definitive number of affected estates.
The measure was first announced in the Autumn Budget 2024 and is scheduled to take effect on 6 April 2027. It will cover most unused pension funds and pension death benefits, bringing them within the inheritance tax framework alongside other inherited assets.
HMRC says the reform is intended to address inconsistencies between different pension arrangements. The department has argued that pension schemes have increasingly been used and marketed as vehicles for transferring wealth after death rather than solely funding retirement.
Certain benefits will remain outside the changes. These include death-in-service benefits payable from registered pension schemes and dependant’s scheme pensions from defined benefit or collective money purchase arrangements.
New Responsibilities for Estate Representatives and Pension Beneficiaries
According to the Government’s consultation response, published in July 2025, personal representatives will be responsible for reporting and paying inheritance tax on unused pension funds and death benefits from April 2027.
This approach replaces an earlier proposal that would have placed responsibility on pension scheme administrators. The Government reconsidered that arrangement after receiving 649 written consultation responses and holding nine workshops with pensions and tax professionals.
Respondents raised concerns about administrative burdens, payment deadlines and possible delays in distributing pension benefits. More than three-quarters of estates containing inherited pension wealth are expected to have no inheritance tax liability.
Under the revised process, pension administrators will be required to provide personal representatives with the value of relevant pension benefits within four weeks of receiving notification of a member’s death.
Beneficiaries may also become responsible for inheritance tax attributable to their inherited pension benefits once appointed. Several payment options will be available, including arrangements allowing pension administrators to transfer the relevant tax directly to HMRC.
According to the Birmingham Mail, financial planners have also highlighted the possibility of retirees reconsidering how they use their pension savings during their lifetime. Some may choose to spend more of their retirement funds or consider passing wealth to younger family members.
The reform leaves the existing six-month inheritance tax payment deadline unchanged, while HMRC continues developing guidance for estate representatives, pension schemes and beneficiaries ahead of implementation.
