The taxman is coming for your pension when you die. Here’s what to do NOW to save your loved ones from a new red tape NIGHTMARE
New rules taking effect from April will require executors to identify and report every pension held by a deceased person to HMRC, creating what experts warn could be a bureaucratic nightmare for grieving families. From that date, pensions will be included in estates for inheritance tax calculations for the first time, meaning thousands more families will face a 40 per cent death duty, while even estates owing no tax will still need to prove this to HMRC by detailing every pension pot.
Research for Money Mail found nearly half of over-55s have not appointed executors, and even fewer have shared pension details with them, leaving families at risk of missing deadlines and incurring interest charges of nearly 8 per cent. Former pensions minister Baroness Altmann has criticised the changes as unworkable, noting families are barred from accessing funds to pay the tax until probate is granted and pension values calculated. With an estimated 3.3 million lost pension pots worth £31 billion across the UK, experts are urging people to compile a checklist of their pension details now and share it with relatives or executors.
- From April, pensions count towards inheritance tax, adding admin burden
- Nearly half of over-55s haven't appointed executors or shared pension details
- Experts urge creating a pension checklist for relatives before rules take effect
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Rules due to take effect next April will bring pensions into the scope of inheritance tax for the first time, meaning they will be counted as part of someone's estate when they die. Executors, the people responsible for sorting out a deceased person's affairs, will have to track down every pension pot the person held and report it to HMRC, even if no tax ends up being owed.
This matters because pensions have traditionally sat outside inheritance tax, so many people have never planned around the possibility of a 40 per cent charge on them. It also matters because pension pots can be easy to lose track of over a working life, and executors may struggle to identify accounts, obtain valuations, and meet reporting deadlines, particularly if they are not close relatives or were not given details in advance.
The change affects anyone with a pension and their families, including those who assume their estate is too small to owe inheritance tax, since they will still need to prove that to HMRC. Baroness Ros Altmann, a former UK pensions minister, is among those who have raised concerns about how workable the new process will be in practice.
Both sides, in good faith
The strongest fair case each way — we don't pick a winner.
The case for
Supporters of the reform argue that pensions have long been an anomaly in the tax system, allowing wealthier savers to use them as a vehicle to pass on wealth largely free of inheritance tax while other assets are taxed. Bringing pensions into the same framework as the rest of an estate closes what many economists and tax specialists regard as an unfair loophole, ensuring people with large pension pots contribute in the same way as those with property or savings. They would also argue that requiring executors to formally account for pensions brings much-needed transparency to a system where billions of pounds sit in forgotten or unclaimed pots, and that any transitional friction is a reasonable price for a fairer, more consistent tax base.
The case against
Critics, including pensions specialists such as Baroness Altmann, contend that the policy has been designed without sufficient regard for how families actually cope with bereavement, imposing a demanding reporting duty on executors who are often grieving relatives with no professional experience. They point to the practical bind of requiring tax to be paid before probate is granted and pension values are even confirmed, compounded by interest charges of nearly 8 per cent for delays that may be entirely outside a family's control. Given that so few people have appointed executors or shared pension records, and millions of pounds sit in lost pots, opponents argue the rules risk penalising ordinary grieving families for administrative gaps the system itself has failed to address, rather than targeting deliberate tax avoidance.