Pensions and inheritance tax: HMRC publishes how it will actually work

HMRC published Technical Note 2 on 27 August 2026. The policy was announced at the Autumn Budget 2024. Building on the first technical note, this one fills in how the tax will actually be collected, and it introduces mechanisms an executor has never had to deal with before.

The change itself, briefly

From 6 April 2027 most unused pension funds and pension death benefits count as part of the deceased’s estate for inheritance tax. The charging provision is section 66 of the Finance Act 2026, which inserts section 150A into the Inheritance Tax Act 1984.

Passing to a spouse or civil partner, or to a charity, remains exempt. Death in service payments, dependants’ scheme pensions and certain annuities are excluded.

The machinery, which is the new part

A withholding notice. An executor - or a prospective executor, before the grant, under section 226A(2) - can require a pension scheme to hold back up to 50 per cent of the death benefit otherwise payable to a person, for up to 15 months after the end of the month in which the member died. It ends sooner if withdrawn, or once the tax and interest are paid.

This answers the practical problem the policy created: inheritance tax is due six months after the end of the month of death, and if the pension has already been paid out to beneficiaries, the executor has to find the money elsewhere. Now it can be held back.

A scheme that ignores a valid withholding notice becomes jointly liable for the inheritance tax attributable to those death benefits, under section 210(3)(b)(i) of the Inheritance Tax Act 1984.

Beneficiaries are jointly liable too, alongside the executor, for the tax attributable to benefits they receive. Taking the money does not put it beyond the reach of the bill.

A payment notice tells the scheme to pay the tax to HMRC out of the pension. It can be given by the executor or by a beneficiary, including a trustee, but not by a prospective executor - unlike the withholding notice above, which is the tool available before the grant. The scheme then has 35 days from receiving a valid notice to pay, under section 226B(2)(b), and the clock does not start until the notice is valid. A payment notice for less than £1,000 is invalid, so small interest balances have to be paid from other funds.

Information deadlines. A scheme must provide the information an executor requests within 28 days. Where beneficiaries have not been decided yet, information about potentially exempt beneficiaries follows within 14 days of that decision.

Clearance discharges the executor from liability for pension benefits nobody knew about. After that the beneficiaries carry the tax, though the executor is still responsible for reporting benefits that come to light.

Changed after consultation

The final regulations were amended in several places following consultation responses. The one most likely to affect an estate: schemes now only have to tell executors about excluded benefits where an inheritance tax account is actually required, rather than in every case.

What this means if you are planning

The layered charge is the point worth understanding. For a non-spouse beneficiary where the member died at 75 or over, the fund can face inheritance tax in the estate and income tax when the beneficiary draws it. That is why the nomination on your pension is now an inheritance tax decision as well as a pension one.

Two things Technical Note 2 does not settle, and we are not guessing at either: the capitalisation of joint-life annuity continuation for non-spouse beneficiaries, and cross-border cases, which the note explicitly sets aside by assuming everyone involved is a long-term UK resident.

Our deep dive and calculator now cite the final regulations and this note rather than the earlier consultation.