From 6 April 2027 there will be a fundamental change to the tax treatment of pension scheme death benefits, with many such benefits brought within the scope of inheritance tax. We take a look at how the regime will work in practice and consider the actions that pension scheme trustees should be taking now to prepare for the changes.
The Finance Act 2026 received Royal Assent on 26 March 2026., The Act will bring many pension scheme death benefits within the scope of inheritance tax (IHT) where death occurs on or after 6 April 2027. One important change since the legislation was originally published is that a member no longer needs to be an “active member” for the exemption for lump sum death in service benefits to apply. This makes it clear that the exemption can to life assurance only members.
In the case of defined benefit schemes, the key benefits likely to fall within scope of the deceased’s estate for IHT purposes are lump sums paid under a guarantee period (eg where the member dies less than 5 years after starting to receive a pension) and lump sums in respect of refunds of contributions (where such lump sums are payable on the death of a deferred member as well as on the death of an active member). Money purchase AVC pots are also likely to form part of a member’s estate for IHT purposes. In the case of money purchase schemes the whole of a member’s unused pension pot on death will be treated as forming part of the member’s estate for IHT purposes.
The changes will result in significant new information sharing requirements. Even where there are no benefits which will be in scope for IHT, scheme administrators will need to respond promptly to queries from a deceased member’s personal representatives (PRs).
Scheme trustees should liaise with their scheme administrators to ensure that they are on course to have systems in place to provide information within the statutory time limits.
On 11 May 2026 HMRC published a Technical Note (TN) on the changes to inheritance tax and, on 18 May 2026, it published for consultation the draft information sharing regulations which set out what information parties need to provide to each other and when. The TN says that the Government intends to publish draft guidance on evidence of the identity of a deceased member’s personal representatives and draft templates for use in relation to withholding notices and payment notices (the notices by which scheme can be required to make IHT payments directly).
The Government intends to finalise the regulations on information sharing in summer 2026. However, further “guidance and other supporting materials” are not due to be published until spring 2027.
The TN flags that it will be necessary for scheme administrators to share information with the deceased’s PRs and respond to notices before the grant of probate or letters of administration have been issued. The TN says that further guidance will be issued in due course, but sets out basic principles as to what evidence of identity the administrators can accept from the PRs. Where there is a will, this could include a copy of the will, evidence of identity that matches the named executors, a copy of the death certificate and a signed declaration that the relevant person has accepted the role of executor. The TN is less specific about what happens where there is no will, but notes that there are rules which specify the order of priority for obtaining a grant of letters of administration in such circumstances.
The TN clarifies that where trustees have discretion as to who receives a benefit, the beneficiary(ies) who the trustees choose will be treated as being entitled to the benefit for IHT purposes when the trustees make their decision, not when payment is made.
The TN and draft regulations confirm that scheme administrators will need to tell the deceased’s PRs the amount of the benefit payable within 28 days of the request. The split between exempt beneficiaries (eg the deceased’s spouse) and non-exempt beneficiaries must be provided by the later of 28 days from the request or 14 days after the beneficiaries are determined. The scheme administrators do not have to provide details of the beneficiaries’ identities at this stage. That is only triggered once the PRs become aware that IHT will be due on the estate and that they therefore need information about the beneficiaries. The administrators will have to provide this information within 28 days of a request being received or, if later, within 14 days of the beneficiaries being determined. At this stage the administrators will need to provide the value of the benefit payable to each beneficiary. The administrators will be required to provide further information to the PRs at the point when lump sum death benefits are actually paid (eg whether an entitlement has been adjusted due to the administrators making a direct IHT payment).
The TN and draft regulations set out details of the information that will have to be exchanged between PRs and scheme administrators where the PRs serve a “withholding notice” on the administrators requiring them to delay payment of death benefits, and also where PRs or a beneficiary serve a “payment notice” requiring the administrators to make a direct payment of IHT in respect of a benefit.
The draft regulations also provide that the scheme administrators will have to make an “event report” to HMRC when the scheme pays a death-in-service benefit (eg a life assurance benefit which is typically a multiple of an employee’s salary) that falls outside the scope of the deceased’s estate for IHT purposes as a result of the exemptions which apply to such benefits.
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