Govt announces two technical amendments to IHT/pensions legislation

The government has announced two technical amendments to legislation bringing unused pensions into the scope of inheritance tax (IHT) from April 2027.

In the Budget, the government confirmed it was making changes related to personal representatives and flexibilities on charitable giving.

The first amendment will enable personal representatives to instruct pension administrators to pay the IHT due to HMRC directly, provided certain conditions are met.

The Society of Trust and Estate Practitioners (STEP) noted that this aimed to address the issue whereby personal representatives may need to pay tax before obtaining probate, while not being able to access the relevant pension pots to pay the liability.

The other amendment will introduce a separate component for pensions within IHT’s charitable giving rules.

Administering estates will be given greater flexibility when calculating eligibility for the reduced IHT rate of 36 per cent that can apply when statutory charitable giving conditions are met, including leaving at least 10 per cent of the estate to charity.

Personal representatives will be able to decide whether notional pension property is included within an estates ‘general’ component or treated separately.

STEP said this was intended to help ensure that the treatment of pension funds did not unnecessarily impact an estate’s eligibility for the reduce IHT rate, and give greater scope to determine how notional pension property is treated when calculating whether the relevant charitable giving threshold has been met.

“The amendments to the Finance Act 2026, announced in the Budget, address some of the concerns and practical difficulties that STEP has raised about the forthcoming IHT changes that bring most unused pension funds and pension death benefits within the value of an individual’s estate for IHT purposes,” commented STEP technical counsel and head of government affairs, Emily Deane.

"We welcome the positive step in the right direction, and recognition by government that amendments were needed.

“STEP will continue to engage constructively with the government to support practical solutions so that practitioners and the public have the clarity they need to make the most informed estate planning decisions.”

This article originally appeared in our sister publication Pensions Age.

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