HMRC releases new details on ‘most hated tax’ – applies to anyone on a pension | Personal Finance | Finance
HMRC has released new rules regarding what’s commonly dubbed “the most hated tax“, which will target older people’s retirement savings. From April 2027, the inheritance tax (IHT) net will be cast much wider, dragging in most unused pension funds and death benefits. Historically, pensions have been shielded from IHT, allowing many retirees to use them as a tax-efficient way to pass wealth down to their families rather than purely funding their later years.
The updated guidance reveals that personal representatives – the people managing an estate after someone dies – will be legally required to take “reasonable steps” to track down all pension assets. Executors will need to dig through paperwork and online accounts to establish the value of the deceased’s retirement pots. Legal experts warn this could create a severe administrative headache.
Law firm Irwin Mitchell has highlighted the difficulty of piecing together fragmented records, tracking down forgotten workplace schemes, and securing digital passwords during a period of bereavement.
Currently, if a person dies after turning 75, beneficiaries usually inherit the pension free of IHT but must pay income tax on any withdrawals.
The new framework coming in 2027 introduces a strict order to mitigate the impact of a double-tax hit:
Second: Beneficiaries will then only pay income tax on the money that remains after the IHT deduction.
While the standard six-month deadline to pay IHT remains – with interest accruing on late payments – HMRC is introducing a safety net to ensure the bill is covered.
Executors will have the power to order pension providers to freeze up to 50% of any lump-sum payouts for up to 15 months. This ensures that the tax is settled before the money is distributed. Alternatively, families can instruct the pension company to pay the required tax directly to HMRC from the fund.
