An inheritance tax (IHT) rule change from the Labour Party government could increase Inheritance Tax bills by an average of £34,000, it has been warned. The change, set to take effect from April 6, 2027, will bring most unused pension funds and certain pension death benefits into the deceased person’s estate for IHT purposes.
Pension Pots Targeted
The measure is designed to prevent individuals from using their pension pots as a vehicle to transfer wealth to the next generation instead of using them for retirement. Maike Currie, VP Personal Finance at PensionBee, explained: “An admin nightmare is waiting in the wings for grieving families.”
Burden on Families
Currie elaborated: “Personal representatives - usually family members, friends or executors responsible for dealing with someone’s estate after death - will effectively become pension detectives, expected to track down old workplace schemes, historic pension pots and online-only accounts, often with incomplete records and missing passwords.”
She urged individuals to take action now: “One simple but important thing people can do now is ensure their expression of wish forms detailing their beneficiaries are up to date with all pension providers. Clear beneficiary information and accurate records could significantly reduce delays, confusion and stress for loved ones later on.”
Some Relief
Currie noted a silver lining: “There is a bit of good news for bereaved families with HMRC confirming that, in most cases, up to half of pension death benefits should still be able to be paid out relatively quickly while inheritance tax liabilities are being settled.”
She added in her guidance: “The reforms may be aimed at stopping pensions being used as inheritance tax shelters, but the practical burden will fall heavily on ordinary families navigating bereavement at an already stressful time. Pension housekeeping is about to become essential estate planning.”
