Question to the HM Treasury:

To ask the Chancellor of the Exchequer, what steps her Department is taking to ensure that the inclusion of unused pension funds in estates for Inheritance Tax purposes will not increase the time taken to process legacies to charities and families.

Most unused pension funds and death benefits payable from a pension will form part of a person’s estate for inheritance tax purposes from 6 April 2027. This removes distortions from changes that have been made to pensions tax policy over the last decade, which have led to pensions being openly used and marketed as a tax planning vehicle to transfer wealth, rather than as a way to fund retirement.

The government has taken steps to ensure that these changes strike a fair balance between beneficiaries of a deceased person’s pension benefits and beneficiaries of their wider estate. At Budget 2025, the government announced changes to help ensure that benefits payable from the deceased’s wider estate are not delayed unnecessarily if inheritance tax is also due on pension benefits. Personal representatives will be able to fund any inheritance tax attributable to the pension by directing pension scheme administrators to withhold 50% of taxable benefits for up to 15 months from the date of death. Personal representatives can then continue to distribute assets from the wider estate as normal.

To ensure that the process of calculating, reporting and paying inheritance tax does not take longer than necessary, the government will introduce regulations setting out deadlines for the parties involved to exchange information.

Most UK pensions schemes are discretionary, which means that the pension scheme trustees or manager have the final say on how death benefits are paid. They must exercise this power reasonably and in accordance with the scheme’s rules.

Members can complete an "expression of wish" or nomination form to indicate their preferred beneficiaries for death benefits. While trustees typically follow these wishes, they are not legally bound to do so. This flexibility allows them to consider other evidence, such as family circumstances at the time of death or wishes expressed in a will.