Inheritance Tax Shake-Up Will ‘Cause Chaos’ As Government Raids Unused Pension Pots From 2027
The inheritance tax raid on pensions will “cause chaos for executors and grieving families’’, a leading lawyer has warned.
Sarah Conner, partner at Hodge Jones & Allen, also cautions that the changes could be ‘disastrous’ and result in fewer people becoming executors.
From 6 April 2027, most unused pension funds and pension death benefits will be brought within the value of a deceased person’s estate for inheritance tax purposes.
Sarah Conner, a solicitor specialising in Inheritance Tax at Hodge Jones & Allen, says: “Levying inheritance tax on unused pensions is going to cause chaos for executors when dealing with a deceased estate, as they will be responsible for paying inheritance tax on pensions they do not control.
“Pension scheme administrators can take several years to identify beneficiaries, resulting in disparity between executors and access to the information required to calculate the IHT liability. Some estates could suffer a tax rate as high as 67%.
“As pensions have historically been free of inheritance tax for decades, professionals have advised clients that pensions were a safe place to build up wealth and safeguard it for the future.
“Over the last decade, the conventional advice has been to keep property values low so that an individual’s estate, on death, can utilise the nil rate band thresholds and keep the balance of a pension high, to ensure it passes on IHT-free.
“We are getting more inquiries from clients, who are distressed by the coming changes. everyone from professionals such as NHS doctors who have built large pension pots, to regular families who thought they were doing the right thing by saving into a pension. Their dependants will be squeezed by the government’s raid.”
Sarah adds that the added administrative burdens could also result in fewer people being prepared to be executors.
She said: “After April 2027, the administration of pensions for IHT purposes is going to be disastrous for executors, where the burden of being an executor will come with greater responsibility. Estates will be more complex, lengthy and more expensive to administer.
“Executors will have to track down the details of every private pension held by the deceased. Some of my older clients were paying into pension schemes at workplaces that no longer exist, and it can be hard to track down every detail, even through an asset search.
“It is also bound to cause problems for estates where a Letter of Wishes or Expression of Wishes held by a pension fund, is not kept updated.
“Strong objections have been raised by professional bodies that the new system would place unfair burdens on executors and personal representatives, but so far these have been ignored by the Government.
“This is going to cause havoc for a lot of families who haven’t thought about estate planning and more people will look to use their pension pots while they are still alive.”
The Finance Act 2026 received Royal Assent in March 2026. This will be followed by secondary legislation. Draft regulations will be shared for a short technical consultation, according to a technical note published in May this year.
The government will lay the full regulations later this year. Guidance and supporting documents will be updated and published by April 2027.