Pensions and Inheritance Tax: What the Proposed Changes Could Mean for Executors
Losing a loved one is difficult. Unfortunately, dealing with their estate often adds further pressure at an already emotional time.
From April 2027, proposed government changes could bring unused pension funds within the scope of inheritance tax (IHT). As a result, executors may face additional responsibilities when administering an estate.
Although the proposals are not yet law, they highlight an important issue for families. Understanding how pensions and inheritance tax may interact could help you prepare ahead of time.
What Could Change?
At present, pension funds can often pass to beneficiaries without forming part of the deceased’s estate for inheritance tax purposes.
However, the government has proposed changes that could alter this position from April 2027. If implemented, executors may need to include unused pension funds when calculating an estate’s inheritance tax liability.
Because the legislation has not yet been finalised, the rules may change before they take effect.
What Could This Mean for Executors?
If the proposals go ahead, executors may need to:
- Locate all pension arrangements.
- Contact pension providers for valuations.
- Gather information from multiple schemes.
- Calculate any inheritance tax due.
- Report the relevant information to HMRC.
- Ensure any tax liability is settled on time.
While some estates will remain relatively straightforward, others may become more complex.
Why Could This Create Challenges?
More Administration
Many people build up pensions with several providers during their working lives.
As a result, executors may need to contact multiple organisations before they can establish the full value of an estate. In addition, different providers may supply information at different times.
Tight Deadlines
Inheritance tax deadlines remain the same regardless of how quickly information becomes available.
Therefore, delays in receiving pension valuations could place additional pressure on executors.
Delays for Beneficiaries
Executors usually need a complete picture of an estate before distributing assets.
If pension information takes longer to obtain, beneficiaries may need to wait longer before receiving their inheritance.
Additional Complexity
The more information an executor needs to gather, the greater the potential for delays.
Likewise, additional complexity can sometimes lead to misunderstandings or disagreements between those involved in administering an estate.
Why Planning Ahead Matters
Although the proposed changes are not due to take effect until April 2027, families can still take practical steps now.
For example, keeping pension records up to date and making sure key information is easy to locate can help executors carry out their duties more efficiently.
In addition, regular financial planning reviews can help families understand how future legislative changes may affect them.
How Fathom Can Help
Estate planning is not just about tax. More importantly, it is about making life easier for the people you leave behind.
At Fathom Financial, we help clients organise their affairs and understand how proposed changes to pensions and inheritance tax could affect their families.
If you would like to review your existing arrangements or discuss your estate planning objectives, please get in touch.
Important Information
This article is for information purposes only and does not constitute financial advice. Any decisions should be based on your individual circumstances and objectives.
Inheritance Tax Planning and Trust Advice are not regulated by the Financial Conduct Authority (FCA).
The proposed inheritance tax changes referred to in this article are subject to legislation and may change before implementation.
