A former Department for Work and Pensions (DWP) minister has warned that a major new tax on pensions will mean a pile of new admin for taxpayers, with some people dragged into paying extra charges. Steven Webb said the new HMRC regime will be "awful" for people to navigate, as they have to report a list of new details to the taxman.
Labour is to expand the remit of inheritance tax with the 40 per cent levy to apply to unused pensions and pension death benefits. The change will come in from April 2027.
'It's going to be awful'
Delivering his verdict on the new regime facing families, Webb told the BBC's Money Box show: "I think it's going to be awful, to be honest." He explained the extra responsibilities this will mean for personal representatives dealing with a person's estate.
Webb said: "They've now got to find out details of every pension that the deceased was a member of. So, they've got to find the paperwork, contact all of them, ask the right questions, get the information back, and only when they've heard back from the worst-administered pension scheme—and we all know some appallingly administered pension schemes—only when they've heard back from the worst one, then they gather the information, work out the tax due, then tell the pension schemes how much tax to pay."
He said it will "take ages" for people to get all these details together and sent off to HMRC, warning there is a "six-month time limit after which you pay interest". Inheritance tax must be paid within six months of the person's death. Once over the half-year mark, an interest rate of 7.75 per cent is applied to the due amount. As an inheritance tax bill can be a five-figure sum, this can soon add up to a sizeable extra amount to pay.
Webb said: "People trying to do their best, to do their civic duty, if you like, are going to be caught in the middle of this horrible process."
'Very complex'
The policy is primarily intended to target unused defined contribution pensions, but Webb warned that salary-related schemes could also attract a bill under the new rules. He told listeners: "The main focus is what are called defined contribution pensions. But there are cases where, for example, a death-in-service lump sum in certain cases will carry tax, or a payment you get if someone retired and didn't draw their pension for long. So, you can't assume that traditional pensions aren't in the net."
The former minister warned that people may struggle to get their head around the HMRC requirements. Webb said: "You have to find out about everything first, and the rules are very complex. And that's the problem—people aren't pension experts, so they've got to contact every pension scheme to give them the information, both how much money is involved and who's going to get it." He added that people dealing with a deceased loved one's affairs will be like "amateur private detectives" trying to get all the details together.
HMRC latest details
An update from the tax authority published in August 2026 said it would continue speaking with stakeholders about the changes. More information is set to come out from HMRC this autumn about the expanded tax relating to international issues, how inheritance tax interacts with income tax, more guidance on intestacy, and clarifications around charities and trusts.
An HMRC spokesperson said previously: "More than 90 per cent 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."
