An update on IHT and pensions

We are delighted to have had the following communication from HMRC, addressing one of our major concerns about the implementation of unused pension pots becoming eligible for IHT.

“We are writing to you as an attendee of a previous HMRC workshop on Inheritance Tax (IHT) on Pensions. We are grateful for the feedback received on the draft legislation published in July, and the government will introduce legislation to parliament shortly.  

The government announced at Budget 2025 new features of the process for IHT to support personal representatives to effectively administer estates containing pensions. If personal representatives reasonably expect IHT to be due, they can direct pension scheme administrators to withhold 50% of the taxable benefits for up to 15 months from the date of death. Personal representatives can then direct pension scheme administrators to pay the IHT due to HMRC before releasing the rest of those benefits to pension beneficiaries. If the instruction is withdrawn or the period ends, the remaining funds can be paid out. This will not apply to exempt benefits, funds under £1,000, or continuing annuities. Personal representatives will also be discharged from liability for pensions discovered after they have received clearance from HMRC.”

We have been working closely with colleagues at RAC, The Law Society and STEP, and it is great news that our concerns have been taken on board.