HMRC recently released their latest Technical note on IHT on pensions, which gives additional clarity to some outstanding issues on how these changes will be implemented. Julia Peake, Technical Manager at Nucleus shares the key points and what it means for clients and Personal Representatives.
You can read HMRC’s update here: Technical note: IHT on pensions
What we know – key points
The note confirmed much of that which has been written into the Finance Act 2026. The key aspects being:
- Personal representatives (PRs) will be responsible for collating all the information, reporting, and paying any IHT due on pensions as well as other estate assets.
- Beneficiaries become jointly liable for their share of the IHT once pension benefits are vested in them unless they’re an excluded beneficiary.
- There will need to be a tripartite communication basis between the PR, beneficiaries, and pension scheme administrator (PSA). Valuations are required within twenty eight days of death notification.
- Withholding notices for up to 50% of the taxable fund to be held back are requestable by the PRs and prospective PRs (PPRs), and paying direct from the pension scheme will be available for those liable to pay the tax.
- Where IHT and income tax are due on pension benefits, the income tax charge will be on the net value after accounting for the IHT chargeable.
Further clarity on identifying PRs and IHT reliefs
There is a clear distinction for the PSAs when trying to identify who is dealing with the scheme member’s estate, those with a Will and those without.
Where there is a Will
The Will identifies who the deceased scheme member’s PRs are dealing with the estate, including pensions when the rules change.
This, along with identity verification, a copy of the death certificate and a signed declaration that the person has accepted the role of executor, should be enough to satisfy the PSA is dealing with the correct person.
Where there is no Will
The PSA will need to identify who the PPRs are. This may be determined by their location.
For England and Wales, Rule 22 of the Non-Contentious Probate Rules 1987, provides that those who have a beneficial interest in the estate are entitled to apply for a Grant and where the order of priority lies.
In Scotland an application should be made to the Sheriff Court for the appointment of an executor, known as an executor-dative in order of priority depending on the relationship to the deceased.
In Northern Ireland, individuals can apply to the Court for Letters of Administration, if they are the next of kin and in order of priority depending on the relationship to the deceased.
The PSA should in all cases, request identity verification and a signed declaration from the PPRs stating they believe the deceased did not leave a Will, they believe they will become the PR for the deceased person’s estate and their relationship to the deceased.
The importance of having a Will and ensuring this is up to date is always important, but especially once these new rules take effect.
Delays in identifying those who can and will be administering the estate can increase the chances of IHT late interest payments applying where the beneficiary is not exempt.
While we are not legal professionals, we should, in our communications, letters and reports be highlighting this to clients.
Reliefs
Clarity was provided on how these new rules will interact with some general IHT rules and reliefs.
1. 10% net estate left for charity – when an individual leaves at least 10% of their net estate to charity, their estate is charged at a reduced IHT rate of 36% instead of 40%. The legislation splits the estate into three components when considering this; the survivorship component, settled property component and general component.
The value of the notional pension amount can only fit into the general component along with other assets which do not fit in the other components.
2. Loss on sale relief – This is available to individuals when the value given at the date of death exceeds the sale value. Generally, sale value can be substituted reducing the IHT bill.
There are rules and time frames involved, but one of the key ones is that it applies to individuals who own the “qualifying investment.” As the deceased scheme member does not own the assets within the pension scheme, the relief cannot be claimed.
3. Paying IHT by instalments – Certain “qualifying property” such as land, shares and businesses are permitted, after having made a written election to HMRC to pay their IHT liability in 10 equal instalments.
The first payment must be made six months after the end of the month in which the individual has died. Again as the individual does not own the pension assets, this election cannot be made, and the notional pension value will not be “qualifying property.”
4. Agricultural and business relief – New rules of 100% relief from IHT for qualifying assets held by individuals and/or trusts up to the value of £2.5m came in to force from April 2026.
Shares traded on, but not listed on, a recognised stock market, such as AIM also saw a reduction in the rate of relief applied to 50% after the qualifying period. As these are reliefs for individuals and the pension assets are not deemed to be owned by the scheme member than these reliefs cannot be claimed for pensions.
5. Quick succession relief – This relief will apply to pensions if IHT is charged and the beneficiary of the pension scheme then dies within five years, to ensure the same asset is not charged twice in “quick succession.” The percentage relief will depend on the time between first and second death.
Still more to do
When liaising with clients, what they want, and need is clarity and certainty to make the best choice for them and their families.
The timetable in the note setting out next steps, seems to leave some important information to just before implementation, which could lead to errors and systems not being ready.
This may cause additional concern to those trying to plan for these changes, but it’s important that we communicate what we can clearly, so clients can make the most informed choices.
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