HMRC confirms new details for pensioners on ‘most hated’ tax | Personal Finance | Finance

HMRC has shared details for pensioners on the ‘most hated’ tax – inheritance tax. This huge change will be a noticeable difference from current legislation. It announced after April 6, 2027, most unused pension funds and pension death benefits will be brought within the value of the estate of someone who has died for inheritance tax purposes.

At the moment, current rules do not consider pension funds for the tax. As a result, they have often been used as a tax-efficient way to transfer wealth rather than for their intended use of funding retirement, the government says. Full details of the change are not yet announced but HMRC did supply a technical note and a timeline for implementing changes.

When an estate is valued above a certain threshold when a person dies, an Inheritance tax of 40% applies.

If the person dies over the age of 75, any inherited pension income is usually free of inheritance tax, but withdrawals will be subject to income tax.

But, after the April 2027 changes, the pension amount received by the beneficiary will be liable for inheritance tax first.

This will mean they will only pay income tax on the remaining amount to avoid a tax “hit”.

Sky News reports that people appointed to settle the affairs of someone who has died will be responsible for taking “reasonable steps” to identify the deceased person’s pension savings, work out their value and pay tax on them.

This means the person will need to look through the person’s records and bank accounts.

HMRC says representatives may also need to contact pension companies and insurance schemes themselves to notify them of the death and request information.

On the government website, it has revealed an “indicative timetable for next steps”.

It says in spring/summer 2026, it will make and lay the regulations on information sharing requirements with a commencement date of 6 April 2027.

In spring/summer/autumn 2026 it will continue to process design and develop guidance and other support tools.

In autumn autumn/winter 2026/2027, it will share draft guidance with industry stakeholders.

By winter/spring 2026/2027, it aims to communicate activity to publicise upcoming changes to impacted groups.

By spring 2027, it will publish guidance and other supporting materials.