Families could face bigger inheritance tax bills, longer probate delays and a significant increase in paperwork under major pension changes confirmed by HMRC.
New guidance published by HMRC confirms that from April 6, 2027, most unused private pension pots and pension death benefits will be included in the value of a person's estate for inheritance tax purposes.
The change marks a significant shift for millions of pension savers who have long viewed pensions as one of the most tax-efficient ways to pass wealth on to loved ones.
Financial experts are warning that many families could be caught off guard by the changes, with some estates potentially being pushed above inheritance tax thresholds for the first time.
More estates could face Inheritance Tax
Tim Grimsditch, Managing Director at Unbiased, said the changes will affect a significant number of households.
He said: "The latest HMRC guidelines - which come into force on 6th April 2027 - show that most unused pension funds and pension death benefits will be included in the value of a person's estate for inheritance tax purposes."
"This means a significant number of families will find their loved ones' estates pushed over the tax threshold, facing bills they wouldn't have under the old rules."
Inheritance tax is typically charged at 40% on the value of estates above available thresholds, although the exact amount payable depends on individual circumstances.
For families who have built up substantial pension savings over decades, the inclusion of pension wealth could significantly increase the value of an estate for tax purposes.
Bereaved families face extra red tape
Experts say the changes could create additional stress for families already dealing with bereavement.
Grimsditch warned: "This tax will come as unwelcome news for many, as it introduces another layer of red tape for grieving families."
"At a time when people are dealing with intense emotional distress, bereaved relatives will now have additional admin to manage, including identifying and contacting multiple pension companies just to establish what is owed."
Under the new system, personal representatives and executors will be responsible for gathering information from pension providers before HMRC can calculate any inheritance tax liability.
Probate could take longer
The changes are also expected to make the probate process more complicated.
Grimsditch said: "Under these new rules, instead of a direct handover of pension benefits, families face a new multi-step process."
"Personal representatives must contact every pension provider the deceased had to request official valuations, report this data to HMRC, and wait for them to calculate the bill before anyone can receive their share of the estate."
He added: "This change in policy means that probate will inevitably take longer, leaving families waiting."
Financial experts say people who have accumulated several workplace pensions throughout their careers could create particular challenges for executors who may need to trace multiple providers and obtain official valuations within HMRC deadlines.
What pension savers should do now
With less than a year before the rules take effect, advisers are urging pension holders to review their plans.
Tobias Robinson, CEO of DayTrading.com, said many people have adopted a "set and forget" approach to pensions because they were traditionally viewed as sitting outside inheritance tax calculations.
However, he warns that strategy may no longer make sense for everyone.
Among the steps experts recommend are:
- Reviewing estate planning arrangements
- Checking pension beneficiary nominations are up to date
- Keeping records of all pension schemes and policy numbers
- Considering whether pension withdrawal strategies remain appropriate
- Seeking professional financial advice before the changes take effect
Robinson also suggests that some savers may wish to review how they balance pension savings and ISA wealth, depending on their personal circumstances and inheritance plans.
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Grimsditch believes many families are underestimating the impact the changes could have.
He said: "For years, saving into a pension was seen as a safe way to look after your children or partner after you're gone."
But he warned that the landscape is changing rapidly.
"If you want to protect your family from an unexpected tax bill or an administrative burden, you should consider seeking advice from a professional financial adviser well ahead of April to get your head around the changes, protect your assets, and give yourself peace of mind."
He added: "With this news in mind, it is important to consider estate planning early."
For millions of pension savers, the long-held assumption that unused pension wealth could be passed on outside inheritance tax calculations may soon become a thing of the past, making the next year a crucial period for reviewing financial and estate planning arrangements.
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