HM Revenue & Customs (HMRC) says estate executors will be able to direct pension schemes to hold back half of what each beneficiary is due while settling an inheritance tax (IHT) bill.
The rules have been set out in a technical note published on 27 August 2026. It explains how the change, already legislated in the Finance Act 2026, will work in practice.
A hold can last up to 15 months, after the end of the month in which the pension holder died.
Under the new rules, executors can send the pension scheme a “withholding notice”. The scheme must then pay out no more than half of each beneficiary’s entitlement while the notice is in force.
Money passing to a spouse, civil partner or charity, which is exempt from IHT, cannot be held back. Death-in-service benefits that meet the qualifying conditions are also excluded.
Executors and beneficiaries will be able to instruct the scheme to pay the tax direct to HMRC from the pension, as long as the bill is at least £1,000. The scheme then has 35 days to make the payment. Schemes must answer basic requests for information from executors within 28 days.
IHT is charged at 40% on estates above the tax-free thresholds. From 6 April 2027, most unused pension funds and death benefits will count towards the value of an estate for IHT purposes.
In November 2025, HMRC estimated around 213,000 estates would include pension wealth in 2027-28. Of these, 10,500 will pay inheritance tax that would not otherwise have been due and 38,500 will pay more, with an average increase of £34,000.
A third technical note, covering how IHT interacts with income tax as well as international issues and charities, is due this autumn. Full guidance is due in spring 2027.
What it means for estates
Many families have treated a pension as the last pot to spend because it could usually pass on free of IHT.
From 6 April 2027, most unused pension money will be counted as part of an estate instead. Beneficiaries will be jointly liable with executors for any IHT on the pension money they receive.
Where someone dies after 75, beneficiaries may also pay income tax on what they draw. HMRC has yet to set out how the two taxes will interact.
The rules take effect in seven months, which gives time to check who you have nominated to receive your pension and how it fits with your will.
A financial planner can estimate the likely tax bill and look at the ways of passing on wealth that suit your family. If you would like to review how the change affects your estate, please get in touch.
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