HMRC has recently published new technical details on how inheritance tax on pensions will work in practice, and the picture is becoming clearer.
At Jones Whyte, our specialist estate planning solicitors have been closely monitoring these developments and advising clients across Scotland, England and Wales on how to prepare. In this article, we explain what the pension inheritance tax rule change means for you, what has been confirmed so far, and the practical steps you can take now – including what these changes mean for those whose pension was intended to supplement retirement income as well as provide for family members after death.
What is Changing? Inheritance Tax Treatment on Pensions Explained
Until now, most unused pension funds have sat outside of your estate for inheritance tax purposes. This made pensions one of the most tax-efficient vehicles for passing inheritable pension wealth to your family – something our estate planning team at Jones Whyte has long incorporated into holistic IHT planning strategies for clients.
From April 2027, that changes. Any unspent pension funds will be counted as part of the deceased’s estate when calculating inheritance tax. Estates above the current £325,000 nil-rate band threshold are taxed at 40%, with an additional residence nil-rate band of £175,000 available in certain circumstances where your main home passes to direct descendants. Combining both available nil-rate bands can therefore create a total tax-free threshold of £500,000.
For many of our clients, particularly those who have diligently saved into defined contribution pensions throughout their careers, this change could significantly increase the inheritance tax liability on their estate, and therefore requires urgent attention.
A Treasury spokesperson has confirmed that more than 90% of estates will still pay no inheritance tax following these changes. However, for those with larger pension savings or combined estates above the available thresholds, the financial impact could be substantial.
What has HMRC Confirmed So Far?
HMRC has published a technical note setting out how the new regime will operate. While the final legislation and full official guidance is not expected until spring 2027, several important points have now been confirmed. Here is what you need to know.
1. Inheritance Tax Will Be Deducted Before Income Tax
A key concern when the changes were announced was the prospect of beneficiaries being taxed twice — once through inheritance tax, and again through income tax when drawing from the inherited pension. HMRC has addressed this directly.
Under the new rules, where inheritance tax is due on a pension, it will be calculated and applied first. Pension beneficiaries will then receive a statutory deduction, meaning they pay income tax only on the remaining amount after inheritance tax has already been settled. The intention is to prevent excessive double taxation on the same pension funds.
This interaction between inheritance tax and income tax is technically complex, and the way it is structured can materially affect the overall tax burden on an estate. Our inheritance tax solicitors at Jones Whyte are experienced in modelling these scenarios for clients, helping you understand the real-terms impact on what your family ultimately receives.
2. More Administration Will Fall on Families and Executors
Under the new system, the personal representatives of an estate – usually the executors named in a will, or close family members if no valid will exists – will be responsible for identifying all pension arrangements held by the deceased and contacting each provider for valuations.
From April 2027, you will need to report the full value of the estate, including pensions, to HMRC and pay any inheritance tax due before the grant of representation can be obtained – known as probate in England and Wales, and Confirmation in Scotland. This is a significant departure from the current process, where providers will typically not discuss a deceased person’s pension until formal legal authority has been granted.
To facilitate this, both pension providers and pension scheme administrators will be required to share information earlier in the process – using documents such as the will and death certificate as proof, rather than waiting for formal probate or Confirmation. A new HMRC online tool is planned to help personal representatives combine pension valuations with the rest of the estate, complete the inheritance tax account, and calculate the tax owed.
The new rules apply across the UK.
In England and Wales, the process of obtaining legal authority to administer an estate is known as probate.
In Scotland, the equivalent is Confirmation.
While the underlying inheritance tax rules are the same in both jurisdictions, the procedural steps differ.
Jones Whyte is dual-qualified, with specialist estate planning solicitors able to advise clients and support executors whether the estate is governed by Scots law or the law of England and Wales – including estates that span both jurisdictions.
Pension consultancy experts have also raised concerns about the tight timescales involved, warning that detailed guidance may not be published until spring 2027 – just weeks before the first cases begin to arise. This places real pressure on pension schemes, executors and families to act quickly once the rules take effect.
This is precisely why speaking to a solicitor now (rather than waiting) is so important. At Jones Whyte, we are already helping clients put the groundwork in place, including ensuring wills are in order and powers of attorney are registered, so that executors have the legal authority they need to act swiftly when the time comes.
3. The Six-Month Deadline for Paying Inheritance Tax Remains
The existing six-month window for settling inheritance tax will remain in place under the new rules.
To help ensure funds are available within this window, executors will be able to instruct pension providers and scheme trustees to withhold up to 50% of pension benefits for up to 15 months. This can be done at an early stage where there is good reason to believe inheritance tax will be due. Both the personal representative and the pension beneficiaries will also have the option to ask the pension provider to pay any tax owed directly to HMRC.
Meeting the six-month deadline requires prompt action, particularly where multiple pension providers are involved. Having a properly drafted will and a registered power of attorney already in place can significantly reduce delays – something our estate planning team can help you put in order well in advance.
4. Important Exemptions Still Apply
Not all pension assets will fall into scope. HMRC has confirmed that most pension death benefits will be subject to the new rules, but several important exemptions remain relevant to estate planning:
Anything passing to a surviving spouse or civil partner (including pension funds) remains 100% exempt from inheritance tax.
Death in service benefits paid as a lump sum death benefit by an employer will generally remain exempt, subject to the applicable death benefit allowance. However, pension scheme administrators may still be required to report these to HMRC.
Dependants’ scheme pensions – a guaranteed regular income paid to a qualifying dependant – will generally remain outside the scope of inheritance tax. A qualifying dependant is a spouse, civil partner, or a child under 23 (unless the child has a disability).
However, there is a critical caveat. The exemption for dependants applies only to a guaranteed regular income. If a beneficiary inherits a flexible drawdown pot or a one-off lump sum, those funds will be treated as part of your estate and may attract inheritance tax. The type of pension benefit your dependants receive therefore matters greatly, and is something our team can help you review as part of wider estate planning.
Many clients we speak to are surprised to learn that the spouse exemption applies to pensions just as it does to other assets.
However, for unmarried couples (even those in long-term relationships) there is no automatic exemption. If you are cohabiting but not married or in a civil partnership, your pension pot could be fully subject to inheritance tax in your partner’s hands.
*This applies whether you are based in Scotland or in England and Wales.
This is one of several reasons why having a professionally drafted Will, and considering whether marriage or a civil partnership is appropriate, can make a significant financial difference.
5. Overseas Pensions Are Also Affected
The changes are not limited to UK-based pension arrangements. If you hold a Qualifying Recognised Overseas Pension Scheme (QROPS) and you are UK resident, those funds will generally be treated the same way as a UK pension and included in your estate. Executors will need to obtain valuations from international providers, which must be converted into sterling at the exchange rate on the date of death.
Our estate planning team is dual-qualified to advise clients with assets in Scotland, England and Wales, and we regularly assist clients with cross-border estates. If you have pension assets held overseas, specialist advice is particularly important.
How Jones Whyte Can Help You Prepare for the 2027 Pension Changes
These changes represent one of the most significant shifts in estate planning in a generation. At Jones Whyte, our estate planning solicitors are already helping clients across Scotland and England and Wales review their position and put robust plans in place. Here is what we can do for you.
Review and Update Your Will
If your will was drafted on the assumption that your pension sat outside your estate, it may no longer reflect your wishes or make the most of the available tax allowances. We offer a comprehensive will writing and will review service, including discretionary trust wills, which give your executors the flexibility to distribute assets in a tax-efficient way at the time of your death — rather than being locked into arrangements made years earlier.
Explore Trust Planning to Reduce Your IHT Exposure
Trusts remain one of the most effective tools in inheritance tax planning. At Jones Whyte, we advise on a range of trust arrangements all of which can play a role in shielding assets from unnecessary tax. While the new rules specifically target pension pots, effective trust planning across the wider estate can still reduce the overall tax burden significantly.
Set Up or Register a Power of Attorney
Having a power of attorney in place for property and financial affairs is not just about planning for incapacity – it is also about making the estate administration process as smooth as possible. In Scotland, this takes the form of a Continuing Power of Attorney, while in England and Wales the equivalent is a Lasting Power of Attorney for Property and Financial Affairs. In both cases, a registered power of attorney gives your representative recognised legal authority to deal with banks and pension providers at an early stage.
Under the new rules, providers will be required to share pension information earlier in the process, and having formal legal authority already registered (whether under Scots law or English law) will help your executors access that information without unnecessary delays. Our team can advise on and prepare the appropriate document for your jurisdiction.
Our Bespoke Inheritance Tax Planning Service
For clients who want a thorough, personalised assessment of their inheritance tax position in light of the upcoming changes, we offer a bespoke IHT planning service for £495 + VAT. This includes:
- An initial fact-finding consultation with our estate planning team.
- A comprehensive written report with clear, actionable recommendations tailored to your circumstances.
- An initial fact-finding consultation with our estate planning team.
With less than a year until the pension inheritance tax changes take effect, the time to act is now.
Speak to our Estate Planning Team Today
The intersection of inheritance tax, income tax, pension law and estate administration is complex. Getting it wrong, or simply doing nothing, could cost your family significantly. Our specialist estate planning solicitors at Jones Whyte are here to help you navigate the changes with clarity and confidence, whether your estate is governed by Scots law or the law of England and Wales.
Whether you need to update your Will, put a power of attorney in place, explore trust arrangements, or commission a full inheritance tax review, we offer the full range of private client services under one roof – with offices in Glasgow and Edinburgh, and dual-qualified solicitors able to advise across both jurisdictions.
Contact us today on 0141 674 4366 or at privateclient@joneswhyte.co.uk to arrange a consultation.
Please note: This article is for general information purposes only and does not constitute legal advice. It should not be relied upon as a substitute for professional legal advice tailored to your specific circumstances. If you need advice on a legal matter, get in touch with our team.
