Pensions and IHT – Assessment and Payment
This article continues our look at HMRC’s recent guidance on the planned inheritance tax changes for pensions, this time focusing on how any IHT liability will be assessed and paid. It is likely to be mainly relevant to CII R04 and J05 students and could also be of interest to those studying for R06, AF5 or AF7.
This article is correct as at 21 July 2026 and is not tax-year specific, but the measures are to come into force with effect from 6 April 2027 so will probably be examined from the 2027/28 tax year.
HMRC’s technical note published on 11 May 2026 regarding IHT and pensions provided some important guidance for trustees and personal representatives on the assessment and payment process.
Who is responsible for reporting and paying IHT?
It confirms that personal representatives (executors or administrators) will be responsible for reporting and paying any IHT due on pension benefits. This is a change from the original 2024 Budget proposal, where pension scheme administrators were expected to take on this role.
When beneficiaries become liable
Once pension benefits are vested in a beneficiary, that beneficiary becomes jointly and severally liable for any IHT due. Payment deadlines remain unchanged, with IHT due within six months of death.
Withholding pension benefits for IHT
Scheme administrators may become jointly liable if they fail to act on a valid instruction from the personal representatives. New legislation allows personal representatives to instruct schemes to withhold up to 50% of a member’s benefits where there is concern that IHT may be due. This can also apply where a personal representative is expected to be appointed, such as where the deceased has died intestate. For example, if a pension of £200,000 is due to be paid out, the personal representative could instruct the scheme to hold back up to £100,000 until the IHT position is confirmed.
Payment notices to pension schemes
Personal representatives may also issue a payment notice requiring schemes to pay HMRC directly where an IHT liability exceeds £1,000. However, this right only applies once legal authority as personal representative has been granted.
Overseas pension schemes
Where the individual is long-term UK resident, overseas pension schemes may also fall within the scope of IHT. However, unlike UK schemes, HMRC cannot issue withholding or payment notices to overseas providers.
When are pension benefits vested?
A key issue is determining when pension benefits are “vested” in a beneficiary. In most cases, pension benefits are held under trust, with trustees using discretionary powers to decide who receives them. The point at which trustees exercise discretion is therefore crucial in establishing who is liable.
Practical issues for trustees and beneficiaries
This can create practical issues where different potential beneficiaries have different tax outcomes, for example a spouse (generally IHT exempt) compared to children (potentially liable). Until trustees make a decision, it may not be possible to confirm the final IHT position.
Plenty of interest there for personal representatives, scheme administrators and CII students alike.
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