Pensions from April 2027
Who pays the inheritance tax on a pension from 2027
The executors report the pension and answer for the tax, yet the money sits with the scheme. The Finance Act 2026 gives them two tools to bridge that gap.
For deaths on or after 6 April 2027, the inheritance tax on a pension is the responsibility of the personal representatives, the executors or administrators of the estate, jointly with the beneficiary who receives the pension. Section 67 of the Finance Act 2026 says so in a new section 210 of the Inheritance Tax Act 1984, and it leaves the trustees of the pension scheme out of the list of people liable. Because the representatives rarely control the pension money, section 68 gives them two notices. A withholding notice stops the scheme paying out more than 50 % of anyone's entitlement for up to 15 months after the end of the month of death. A payment notice, open to the representatives or the beneficiary, makes the scheme pay the tax to HMRC itself, for amounts of at least £1,000, within 35 days. The tax is due by the end of the 6th month after death. In the site's worked case, £140,000 of a £280,000 bill falls on a £600,000 pension shared by two children.
Withholding notice: what an heir can draw at first
Payable while the notice runs
£150,000
| Held back | £150,000 |
| Notice lasts at most | 15 months |
| Scheme can pay the tax for you | Yes |
A payment notice must be met within 35 days.
Law read and sums checked by Radif Partners · Editorial policy · How the tax is worked out
Two parties on the hook, one left off
Liability is set out in section 67 of the Finance Act 2026, which rewrites section 210 of the Inheritance Tax Act 1984 for pension property. Two people are liable for the tax on a pension: the personal representatives of the deceased, and the person in whom the pension benefit vests, meaning the beneficiary. HMRC can look to either. The trustees of a registered pension scheme are not liable, a change from the original plan, under which schemes would have been liable. The government's consultation response of July 2025 moved liability to the representatives.
The scheme administrator is not entirely off the hook. It becomes liable if it pays out benefits in breach of a withholding notice, or if it fails to comply with a valid payment notice. In other words, the administrator's exposure comes only from ignoring the representatives' instructions, not from the tax itself.
Holding money back: the withholding notice
A representative who is liable for tax on money they cannot reach needs a way to stop it leaving. Section 68 provides one in new section 226A. The personal representatives, or people who expect to become them, can give the scheme administrator a withholding notice. While it has effect, the scheme may pay no more than 50 % of any person's benefit entitlement. The rest stays in the scheme.
The notice cannot run indefinitely. It ends when the inheritance tax attributable to the pension has been paid, when the representatives withdraw it, or at the latest 15 months after the end of the month in which the member died. For a death in January, that limit falls at the end of April in the following year. Excluded benefits, such as a death in service lump sum, and exempt benefits, such as a pension paid to a surviving spouse, are not withheld at all, since there is no tax on them to protect.
Paying from the pot: the payment notice
Withholding protects the tax but does not pay it. New section 226B, known as the Pensions Direct Payment Scheme, does. Either the personal representatives or the beneficiary can give the scheme administrator a payment notice requiring it to pay HMRC the inheritance tax attributable to the pension. The amount must be at least £1,000, and the administrator has 35 days, starting with the day the notice is received, to pay. The beneficiary's benefits are then reduced on a just and reasonable basis.
Two limits matter in practice. HMRC’s technical note points out that money already used to buy an annuity with an insurance company is no longer in the scheme, so it cannot be used to meet a payment notice. And paying through the scheme does not change the beneficiary's later income tax: under section 70, inheritance tax paid by the scheme under a payment notice is deducted from taxable pension income in the same way as tax the beneficiary paid personally, which the page on pensions after 75 works through.
A worked case: a pension-heavy estate
A single parent dies at 70 on or after 6 April 2027. The estate holds a £500,000 home left to two children, £100,000 in a bank account, and a £600,000 pension that the children are nominated to share equally. The engine finds a bill of £280,000, spread across the estate at 23.3 %.
| Amount | |
|---|---|
| Inheritance tax on the estate | £280,000 |
| Share falling on the home and savings | £140,000 |
| Share falling on the pension | £140,000 |
| Each child’s share of the pension | £300,000 |
| Tax attributable to each share | £70,000 |
| Payable to each child while a withholding notice runs | £150,000 |
| Held back in the scheme for each child | £150,000 |
| Each child keeps once the tax is paid | £230,000 |
The representatives face £140,000 of tax on the home and savings, and the savings alone are £100,000. The pension's share of £140,000 is held by the scheme. With a withholding notice in place, each child can receive up to £150,000 straight away, which is far more than the £70,000 of tax attributable to their share, so the tax is protected. A payment notice from the representatives or from either child then sends the pension's share of the tax to HMRC from the fund. Because the member died before 75, the children pay no income tax on what they receive within the lump sum and death benefit allowance.
The notices only reach the pension's part of the bill. A payment notice covers the tax attributable to the pension, so the £40,000 by which the estate's own share exceeds its cash has to come from the estate itself, for instance from the sale of the home. Nothing obliges the beneficiaries to use the scheme route either: a child with savings of their own can pay the tax attributable to their share directly, and the income tax deduction still follows if the member was 75 or over. The choice affects cash flow and paperwork, not the amount of tax.
The six-month deadline
Inheritance tax is due by the end of the 6th month after the death, as GOV.UK’s page on paying the tax sets out: for a death in January, by 31 July. Interest runs on anything unpaid after that. A payment is usually needed before probate is granted, or before confirmation in Scotland. With 35 days for the scheme to act on a payment notice, representatives who want the pension's tax paid from the fund have to know what the scheme holds well before the deadline, which is why the information duties being written into regulations matter.
Some reliefs and facilities that help with the timing on other assets are closed to pensions. The technical note confirms that business and agricultural property relief do not apply to pension property, nor does loss on sale relief, nor the option to pay by ten yearly instalments. Quick succession relief does apply.
A pension found after the estate is closed
Old workplace pots are easy to overlook. Section 67 also inserts section 239(4A): personal representatives who have obtained a certificate of discharge are not liable for tax on a pension that comes to light afterwards, unless they were careless. The beneficiary of that pension stays liable for its tax. The certificate therefore protects representatives who did their work properly, and leaves the tax with the person who ends up holding the money.
Questions of liability turn on the facts of each estate and on documents this page cannot see. Nothing here is legal advice to an executor or a beneficiary; a solicitor, the scheme administrator or a regulated adviser can look at a real case. The calculator gives a first view of how a bill divides between the pension and the rest, and the excluded benefits page lists what a withholding notice never touches.