The UK government has been warned that changes to Inheritance Tax (IHT) and pensions will cause ‘huge problems’ for executors and beneficiaries.
The warning comes from the influential House of Lords economic affairs committee, highlighting the very real challenges for executors to pay IHT due on estates that include pension assets within six months of death. The committee calls for that payment deadline to be extended from six to twelve months.
What has changed
Currently, most UK pension schemes are discretionary, meaning unused pension funds typically fall outside of an estate and therefore not subject to IHT. This has made many pension funds a tool not only for retirement savings but also for estate planning.
That changed when the Government in its 2025-26 Finance Bill introduced significant reforms. From April 2027, unused pension funds will fall into an estate for IHT purposes, meaning they could be taxed at 40%.
The nil-rate band, the threshold below which no IHT is paid, stands at £325,000. Together with the residence nil rate band of up to £175,000 where a home passes to direct descendants, an individual can potentially pass up to £500,000 free from IHT, rising to £1 million for married couples and civil partners.
Ever more estates are being caught in the IHT net, largely due to increasing property values. By including pension assets, the number of estates liable for IHT is expected to increase considerably.
Timing matters
The House of Lords economic affairs committee has echoed the same concerns that probate lawyers and accountants first raised when the changes were announced.
IHT liabilities need to be paid within six months of the date of death, and if they are not, punitive interest rates are applied by HMRC. Yet pension assets are not always obvious – they don’t, for example, appear on probate applications and there is no central register of pensions. It is also not uncommon for individuals to build up multiple pension schemes that take time to track down.
Where a death is unexpected, even relatively straightforward financial affairs can take time ot unravel. When unknown pension assets are involved, that timeframe extends significantly.
And even where pension assets are known, pension providers are not geared to executor deadlines. Pension schemes are regulated to protect members and to ensure the right beneficiary decisions are made, with little or no consideration of the probate landscape. It is not uncommon for pension providers to take up to six and even nine months to confirm death benefit values.
Whilst executors of estates carry the legal risk and responsibility for reporting and paying IHT on pensions, they do not control the timeframe for pension reporting. It can leave them in an impossibly exposed position.
The six-month payment deadline is already often a challenge for executors and their probate advisers as ever more estates are pulled within the IHT net. These changes will further exacerbate that.
The House of Lords economic affairs committee calls for the IHT payment deadline to be extended to twelve months. This seems a very sensible suggestion.
Contact our Private Client Solicitors
For further advice or guidance on preparing a Will and Estate planning, contact our Private Client Solicitors.
If you are in need of advice or assistance on any of the legal issues mentioned in this article, please contact any member of our experienced Private Client team on 020 7631 4141 or email privateclient@bishopandsewell.co.uk
The above is accurate as at 17 February 2026. The information above may be subject to change.
The content of this note should not be considered legal advice, and each matter should be considered on a case-by-case basis.
