Changes To Pension Tax Treatment Create Significant Risks For Personal Representatives

From 6 April 2027, pension death benefits will be subject to Inheritance Tax (IHT) undoing decades of wealth planning advice that encouraged people to use pensions as a vehicle for avoiding death charges

From 6 April 2027, unused pension funds and most pension death benefits will form part of the deceased's estate for inheritance tax purposes. The PRs of the estate will calculate the inheritance tax liability on the estate as a whole, taking account of available exemptions, reliefs and nil-rate bands. The proportion of that liability attributable to the pension benefits will then be identified and allocated to the relevant pension beneficiaries.

This is likely to create difficulties for PRs because, perhaps surprisingly, the new rules make them responsible for paying any IHT attributable to the pension even though the funds remain under the control of the Pension Scheme Administrator (PSA).