The inheritance tax treatment of pensions is set to change significantly from 6 April 2027. People preparing for the future should begin considering what the new rules could mean for those eventually responsible for administering their estate.

From April 2027, most unused pension funds and pension death benefits will be included within the value of a person’s estate for inheritance tax purposes. Personal representatives, including executors appointed under a will, will be responsible for reporting those benefits and paying any inheritance tax due.

This represents an important change to the probate process. Executors may need to obtain information from several pension providers, bring that information together with the deceased’s other assets and liabilities, and establish the estate’s overall inheritance tax position.

Although many estates will continue to have no inheritance tax to pay, the reforms are likely to make administering some estates more involved. They also make it increasingly important for people to keep clear records and choose executors who are prepared for the responsibility.

What will change from April 2027?

From 6 April 2027, most unused pension funds and pension death benefits will be included when calculating the value of a person’s estate for inheritance tax purposes.

Under the new rules:

• most unused pension funds and pension death benefits will form part of the inheritance tax calculation;
• personal representatives will be responsible for reporting and paying any inheritance tax due;
• pension beneficiaries may also become liable for tax attributable to the benefits they receive; and
• death-in-service benefits paid from registered pension schemes will generally remain outside the inheritance tax calculation.

Further practical guidance is expected before the changes take effect. However, the main position is clear. Executors will need to obtain information about relevant pension benefits and include them as part of the estate’s wider inheritance tax administration.

Our earlier article, Will your pension change your inheritance tax position from 2027?, looks more closely at what the changes may mean for wills, pension nominations and estate planning. This article focuses on the practical impact for the people responsible for administering the estate.

Why will pensions create more work for executors?

At present, benefits from many discretionary pension schemes can pass to beneficiaries outside the deceased person’s estate for inheritance tax purposes. Pension providers or trustees will often deal directly with the nominated or chosen beneficiaries.

From April 2027, the executors may need information about those benefits even where the pension money itself does not pass through the estate.

They will need to identify the pension arrangements held by the deceased and notify the relevant scheme administrators. The providers will then need to supply valuations and information about any unused funds or death benefits.

The executors must combine this with details of the deceased’s property, savings, investments, lifetime gifts, debts and other assets. Only once the wider picture is available can they determine whether inheritance tax is payable and how much of that liability relates to the pensions.

This may be manageable where the deceased had one pension and kept clear records. It may be considerably harder where they had several workplace pensions, personal pensions and older arrangements accumulated over many years.

Employers and pension providers can change names, schemes can merge and paperwork can become outdated. Executors may know that a pension exists without knowing the provider, policy number or current value.

Different providers may also respond at different times. This could delay the point at which the executors have enough information to finalise the inheritance tax position and proceed with the administration.

Who will be responsible for paying the inheritance tax?

During the consultation process, the Government initially proposed that pension scheme administrators would report and pay the inheritance tax relating to pension benefits.

That approach has changed. Under the final model, the personal representatives will have primary responsibility for reporting and paying the tax due on the estate, including the amount attributable to pensions.

This may create a practical difficulty. The executor could be responsible for tax arising from a pension benefit that is paid directly to someone else.

For example, a person may leave their estate under their will to their children but nominate another relative to receive their pension. The executors may have to account for the pension when calculating inheritance tax even though the pension beneficiary, rather than the estate, receives the money.

The new system will include ways of addressing this. Where tax is expected to be due, there will be circumstances in which pension funds can be withheld and used towards the inheritance tax liability before the balance is released to the beneficiary.

However, executors will still need to communicate with the pension providers and beneficiaries, understand how the tax is apportioned and make sure the correct amount is reported.

Could the changes delay probate?

Inheritance tax is generally due by the end of the sixth month following the month in which the person died. Interest may be charged where payment is late.

Executors often have to address the inheritance tax position before obtaining the Grant of Probate. However, they may need the grant before they can sell property or access some of the estate’s larger assets.

That can already create cash-flow and timing difficulties. The pension reforms may add another stage to the process, particularly where the executors are waiting for information from several schemes.

The Government’s proposed information-sharing system is intended to help. Pension scheme administrators are expected to provide relevant information within prescribed timescales once they have been notified of the death. Further regulations and guidance are due before the rules take effect.

Even with a formal process in place, the administration is likely to be easier where executors already know which pensions exist and have the details needed to contact each provider.

What responsibilities does an executor have?

Dealing with pensions will be one part of a much wider role.

Depending on the estate, an executor may need to:

• locate the original will and understand its terms;
• identify and safeguard everything the deceased owned;
• obtain appropriate valuations;
• establish debts and other liabilities;
• investigate lifetime gifts;
• complete inheritance tax reporting and arrange payment;
• apply for the Grant of Probate;
• collect, transfer or sell assets;
• prepare estate accounts; and
• distribute the remaining estate to the correct beneficiaries.

Executors must follow the will, act impartially and keep proper records of the decisions they make.

Mistakes can have serious consequences. An executor who distributes the estate before all tax, debts and claims have been resolved may need to recover money from the beneficiaries. If that is not possible, they could potentially be personally responsible for the shortfall.

Professional advice can be obtained, and it will often be sensible to do so where an estate is taxable or complicated. However, appointing a solicitor or accountant to help does not automatically remove the executors’ underlying legal responsibilities.

Is it time to reconsider who you have appointed?

Many people appoint a spouse, adult child, sibling or close friend as their executor. That can work very well, particularly where the estate is straightforward and the person appointed is organised and comfortable dealing with financial information.

However, the role should not be treated as simply an honorary appointment.

From April 2027, an executor dealing with a taxable estate may need to communicate with HMRC, pension providers, banks, valuers, beneficiaries and professional advisers. They may need to understand why a pension paid outside the estate still affects the tax calculation and ensure the liability is dealt with correctly.

When reviewing your will, it is worth considering whether your chosen executors:

• know that they have been appointed;
• remain willing and able to act;
• are likely to work well together;
• can deal confidently with financial and legal paperwork;
• have enough time to take on the role; and
• will seek professional advice where needed.

A solicitor can be appointed as an executor alongside a family member or, where appropriate, as the sole executor. This may be worth considering where the estate is likely to be taxable, includes several pensions or properties, contains business or overseas assets, or involves difficult family relationships.

Family executors can also remain appointed while instructing solicitors to help with some or all of the probate and estate administration.

How can you make the process easier?

A well-organised estate can save executors a considerable amount of time and uncertainty.

Before the new rules take effect, practical steps may include:

Keep a record of your pensions

List your current and previous workplace pensions, private pensions and other relevant retirement arrangements. Include the provider, policy or membership details and the location of any important documents.

Review your will and pension nominations together

Your will and pension nomination forms perform different functions, but they should form part of the same overall plan. Check that the beneficiaries remain appropriate and consider whether the new inheritance tax treatment could change the intended balance between them.

Maintain an asset schedule

Keep an up-to-date record of your property, bank accounts, investments, insurance policies, business interests and significant digital assets. This should be stored securely, with your executors told how it can be found when needed.

Consider how inheritance tax would be funded

An estate can be valuable without having much immediately available cash. Where most of the value is held in property or pensions, executors may face difficulties paying inheritance tax before assets can be sold or pension benefits released.

Speak to your executors

Make sure the people appointed understand the role and are still prepared to accept it. This gives them the opportunity to ask questions and allows you to reconsider the appointment if their circumstances have changed.

Preparing for the April 2027 changes

The pension inheritance tax reforms will affect more than the amount of tax that some estates pay. They will also change the information executors need to gather and the parties they must deal with during the administration.

The rules are now due to take effect for deaths on or after 6 April 2027. Further procedural guidance will follow, but individuals and families do not need to wait before reviewing whether their arrangements remain suitable.

Looking at your will, pension nominations, executor appointments and financial records together can help avoid surprises. It can also give your executors a much clearer starting point when they eventually need to act.

stevensdrake solicitors advises individuals and families on wills, inheritance tax planning, probate and estate administration. Please contact our Wills, Trusts and Probate team if you would like to review how the April 2027 pension changes could affect your estate or the responsibilities of your chosen executors.