There’s been a lot of media attention on the Government’s proposals to include unused pension funds and death benefits in the scope of Inheritance Tax (IHT) starting from 6 April 2027. So, where do these proposals currently stand for pension scheme trustees and administrators?

In July 2025, the Government released its response to a technical consultation, which clarified several aspects of the proposals, alongside draft legislation, which was open for comments until 15 September 2025. Some notable points have emerged from this.

Administrative responsibilities

The original proposals gave pension scheme administrators significant reporting and payment responsibilities, but under the revised proposals these have mostly shifted to the personal representatives (PRs) of a deceased person.

However, administrators will still need to share information quickly and accurately to ensure the process works smoothly. They will also be required to pay the IHT in certain scenarios where directed to do so by the beneficiary (expected to be a similar process to “scheme pays”). We don’t have the specifics yet, but trustees should consult with their administrators as 2027 approaches to confirm they are ready to meet these obligations.

The new processes will also involve telling the PRs about the chosen recipients of certain death benefits and legislative changes are expected “in due course” to enable this information sharing.

However, sharing these details with PRs may increase the chances of trustees having to manage complaints about how they have exercised a discretion to pay lump sum death benefits in more complicated family scenarios.

How does it impact benefits paid by pension schemes?

Pensions or lump sums paid to a deceased member’s spouse or civil partner will not be liable for IHT, under existing IHT exemptions.

In addition, it appears the following will be out of scope:

• scheme pensions from a DB scheme, eg dependants’ or children’s pensions
• death in-service lump sums, though the definition in the draft legislation needs clarifying. This is one for trustees and employers to watch, and
• annuities purchased for dependants

It appears the following will be in scope for IHT if not paid to a spouse or civil partner:

• DC pots on death (including AVC funds)
• amounts paid under a guarantee, whether that be a continuation of pension following death, or the typical 5 year guarantee lump sum paid by DB pension schemes. It’s not clearhow this ties in with the underlying policy, given they do not seem to be about passing on wealth and on the DC side guarantees will have had an associated cost at the point of purchasing an annuity.
• other death lump sums that aren’t a death-in-service lump sum, eg refunds of contributions.

There is also clarification needed on trivial commutation lump sums paid when a dependant commutes their pension.

Some points of interest for trustees coming out of this

Lump sums where the recipient is chosen under a discretion

The legislation now treats lump sums the same for IHT purposes, regardless of trustee discretion over the recipient.

This could raise the question for trustees over whether to remove their discretion from scheme rules if there is no IHT benefit, in favour of automatically paying it as directed by the member, or automatically paying it to the member’s estate.

While perhaps superficially attractive in reducing the burden of operating discretions, it would have potential legal and practical difficulties. Having a discretion to choose the recipient can be useful, given members don’t necessarily keep expression of wish forms up to date.

Differential treatment between unmarried partners and spouses/civil partners

The changes emphasise differences in treatment of pensions, with IHT exemptions for spouses/civil partners but not for unmarried partners, particularly impacting DC pensions.

If you have a DB pension with attaching dependant’s pensions, on your death, the pensions will be paid free of IHT irrespective of whether they are paid to your spouse, civil partner, unmarried partner, or children.

If your DC pot is paid to your spouse or civil partner, there are no IHT consequences. But if it’s paid to your unmarried partner, it will be within your estate for IHT purposes.

The difference in treatment could be particularly stark on an unexpected early death of someone with an unmarried partner and young children where the deceased is the primary earner and the DC pot forms a large part of the family savings.

With DC pension savings becoming increasingly important as fewer workers have DB pensions to rely on, trustees should think about their communication strategy and raising awareness of this differential treatment where appropriate.

What value of DC pot counts for IHT purposes?

The amount of the DC pot counted for IHT purposes is the value at date of death. This could be materially different from what is actually paid out.  There are reliefs available in analogous circumstances where shares are sold at less than the value used for IHT purposes, and we hope the Government will provide similar relief for pension savings. If not, trustees will need to think about what they do with a DC or AVC pot once notified of a death – do they move it into cash as quickly as possible?

Next steps

The Government seems committed to the overall policy on IHT, but we hope it will take on board feedback on the draft legislation on various technical areas, as well as some of the practicalities.

Once the legislation is final, trustees should consider what to communicate to their members in the lead up to 2027. Trustees will also want to understand how their administrators are taking steps to cater for the changes.

Read our full consultation response.