From April 2027, money left untouched in a pension pot at death will be counted as part of the overall estate, potentially incurring a 40% inheritance tax bill. Financial planners are urging people to take simple steps now to prepare, rather than panic.
Guidance Timeline Set Out
Angela Davis, a chartered financial planner at Hymans Robertson, said: "It is important not to panic but do understand how the value of your estate will be impacted." The Government has not yet published all the fine print for the tax, but Davis said more details are expected soon.
Davis said: "HMRC are still publishing technical notes and guidance about the changes and have said that full guidance and supporting materials are planned for spring 2027. An additional technical note is expected this autumn with more detail on international aspects, intestacy, charities and trusts."
She added: "So until this is in place we won't know the full impact for pensions."
Executor Duties and Paperwork
Even before all details are finalised, one thing is clear: those sorting out a relative's estate after death will face more paperwork. Davis said: "What we do know is that personal representatives (executors) will have increased duties and administration burden as they will be responsible for locating and listing every pension scheme which the deceased held and providing valuations to include in the estate valuation."
To ease the burden on family, Davis suggests building a quick checklist for every pension held and keeping it in a safe place. The details to file include the pension provider's name, the account or policy number, and the customer service phone number.
Check Beneficiaries and Wills
Another crucial task is checking who is named as the beneficiary on pensions, often done through an 'expression of wish' form. Davis warned that people frequently forget to check this is up to date.
She explained: "This can be more than one person. Pensions do not automatically follow a will and often people forget to complete the information or it is out of date. This can be done by contacting the pension provider and only takes a couple of minutes."
If a life change such as divorce has occurred, an outdated form could mean money accidentally goes to an ex-partner instead of current family. Davis said: "Every adult should have a will in place and ensure that on life events (marriage, children, divorce for example) that it is kept up to date and mirrors your wishes."
An HMRC spokesperson said: "More than 90% of estates will still pay no inheritance tax, including on pension funds. We want to help people get their tax right and we're continuing to provide information about how the taxation of unused pension funds and death benefits will work. We've published detailed notes to provide further clarity, and will publish further guidance ahead of the changes coming into effect."
