A pink piggy bank is lying on its side with scattered coins around.

Finance Bill 2025-26 briefing: Inheritance tax on unspent pension pots

13 January, 2026

The ATT has produced a Finance Bill 2025-26 briefing on clauses 63-67,  which will bring the value of unused pension pots and some other death benefits into scope for Inheritance Tax (IHT) for deaths occurring on or after 6 April 2027.

Whilst there were some welcome changes announced at Budget 2025 to help reduce the risks to Personal Representatives (PRs) - who will be responsible for calculating any tax due and ensuring payment - these measures will still be complex to apply in practice. Clear guidance for both PRs and Pension Scheme Administrators (PSAs) will be essential.

To help PRs better manage the payment process we would like to see:

  • PRs able to apply for a longer withholding period than the currently proposed 12 months to reduce the risk of pension schemes paying out benefits before the PRs have had time to finalise the IHT liabilities.
  • The removal of the £1,000 minimum threshold for direct payments by pension schemes to HMRC.
  • The option to pay by instalments where the pension holds illiquid assets such as commercial property.

For the purposes of assessing if the reduced rate of IHT applies when significant charitable gifts are involved, we would like to see pension assets considered as a separate component of the estate.

We also remain concerned about the impact of the changes on unmarried couples. Currently, unmarried couples can leave pension wealth to each other without IHT consequences but they now risk losing value from pension assets which they may not have planned for. Unmarried couples may need to take advice on their own position. 

Finally,  it is disappointing that the Government did not consult on alternative, pension-specific measures, decoupled from the individuals’ wider IHT position, to tackle the concerns around using pensions as a tax-efficient wealth transfer vehicle. Fundamentally, even with the changes introduced by Budget 2025, PRs are still being asked to manage IHT payments on assets over which they do not have full control.