Families face red tape nightmare with inheritance tax on pensions from 2027
Bereaved families will face increased financial and administrative pressure following the government’s decision to include pensions in inheritance tax (IHT) calculations from April 2027, despite widespread opposition from both the public and the pensions industry.
Under the new rules, pension pots will be treated as part of an individual’s estate when calculating inheritance tax liabilities. The Treasury expects the policy to raise £1.46 billion per year by 2029–30, with 10,500 estates set to pay inheritance tax as a result, and a further 38,500 estates facing higher tax bills, according to HM Revenue & Customs (HMRC).
The move has been described by critics as the Labour government’s most unpopular tax change to date. A recent AJ Bell poll of 2,050 adults found that 44 per cent opposed the change, with just 21 per cent in support.
Renny Biggins, head of retirement at The Investing and Savings Alliance, which represents over 270 financial services firms, said the decision was deeply disappointing.
“Despite significant pushback from the industry, pensions will now form part of inheritance tax calculations,” he said.
Initially, the government had proposed that pension scheme administrators would be responsible for calculating and paying any tax owed on pension pots. However, following intense lobbying from the pensions industry, the Treasury has shifted the burden to personal representatives, typically either solicitors or bereaved family members.
They will now be required to identify and report all pension assets and pay any IHT due within six months of death to avoid interest charges—placing yet another burden on grieving families.
The government’s summary of responses to the HMRC consultation published this week noted that although some supported the principle of taxing pension wealth, “the majority strongly opposed the proposal to make pension scheme administrators liable”.
Former pensions minister Sir Steve Webb warned that the changes risk overwhelming grieving families with complex bureaucracy at an already difficult time.
“Life is tough enough when you have just lost a loved one without having extra layers of bureaucracy on top,” said Webb, who is now a partner at consultancy Lane Clark & Peacock.
He explained that family members would now have to track down all pensions held by the deceased, obtain statements from each scheme, collate the data, and use HMRC’s online calculator to determine the IHT liability—then pay the tax within six months.
“Complications will no doubt arise when families cannot locate all pensions or when providers are slow to supply the necessary information,” Webb added.
He urged the government to rethink its penalty rules, warning that families could be unfairly fined for late payments caused by delays beyond their control.
“While the changes HMRC has made are undoubtedly good news for pension schemes and those who administer them, it is hard to see that they are good news for bereaved families.”
Critics say the inclusion of pensions in IHT calculations represents a major shift in how retirement savings are treated—reversing previous assurances that pensions would remain outside the tax net and could be passed on tax-free in most circumstances.
Industry experts have questioned the practical feasibility of the policy, warning that many individuals have multiple pension pots, often spread across different providers, with some dormant or difficult to trace.
With inheritance tax already considered one of the most complex areas of the tax system, the addition of pensions is expected to create a significant administrative burden, particularly for families with modest estates.
The Treasury insists the change is a matter of tax fairness, ensuring that pension wealth is treated in line with other assets like property and investments. However, the debate is likely to intensify as the April 2027 implementation date approaches—and as more families become aware of the additional red tape they may soon face during an already difficult period of loss.
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Families face red tape nightmare with inheritance tax on pensions from 2027
