The headline story this week is a platform criticising a technical note. The story underneath it is considerably more useful to an accountant, and it is this: from 6 April 2027 a pension fund and an identical asset held outside a pension will be taxed differently on death, and the pension will be taxed worse. Not by a small margin, and not in a way that planning after the event can fix.
That is worth stating plainly because the profession has spent a decade telling clients the opposite. Leaving the pension alone and spending other assets first was, for a long stretch, simply correct. A great many owner-managers ordered their retirement income around it. The rule changed; the habit has not. And the practice that prepares those clients’ accounts is in the best position of anyone to notice which of them are still running the old plan.
What actually changes on 6 April 2027
The reform itself is settled law rather than a proposal. Legislation in Finance Act 2026 brings most unused pension funds and pension death benefits within the value of a deceased person’s estate for inheritance tax from 6 April 2027. HMRC set out the mechanics in its technical note Inheritance Tax on pensions, published on 11 May 2026 and updated on 29 May 2026. We covered the headline arithmetic of the change, and the client list it creates, in the trust register as a signal list. What follows is the part of the technical note that has had far less attention.
Two carve-outs survive, and both are worth knowing precisely. Death in service benefits payable from a registered pension scheme are excluded. So are dependants’ scheme pensions from a defined benefit arrangement or a collective money purchase arrangement. Everything else in the unused-fund and death-benefit category is in scope.
The note also introduces the term that does most of the work in the rest of this article: notional pension property. That is what the estate is treated as holding. The member is not treated as owning the scheme’s underlying assets — only a notional amount equal to their value. That distinction sounds like drafting housekeeping. It is the reason four separate reliefs fall away.
The reliefs that stop at the pension boundary
This is the substance of AJ Bell’s objection, and it holds up against the primary source. HMRC’s technical note confirms that notional pension property does not fall within the definition of qualifying property, and is neither relevant business property nor agricultural property. The consequences follow mechanically:
- No business property relief. Trading company shares that would attract relief held personally attract none inside a pension.
- No agricultural property relief. The same asymmetry, on the same reasoning.
- No loss on sale relief. Notional pension property falls outside the definitions of qualifying investments and interests in land, so a fall in value between death and sale cannot be reclaimed.
- No payment by instalments. The instalment option attaches to qualifying property. Notional pension property is not qualifying property, so the tax is due in a single payment.
Rachel Vahey, head of public policy at AJ Bell, described the effect as a two-tier tax system, and on the reliefs point that is a fair characterisation rather than a rhetorical one. Identical assets, different tax treatment, decided by which side of a pension wrapper they happen to sit on.
Putting real numbers on it
The following is illustrative — a composite built to show the shape of the problem, not a real client and not a prediction about any particular estate.
An owner-manager dies in 2028, aged 78. The picture is unremarkable for a practice of any size:
- Trading company shares held personally, valued at £1,200,000. Business property relief applies in the ordinary way, so the inheritance tax attributable to them is nil.
- A small self-administered scheme holding £900,000, of which £600,000 is the trading premises the company operates from and £300,000 is invested.
- The nil-rate band and residence nil-rate band are already absorbed elsewhere in the estate, and the estate passes to adult children rather than a surviving spouse.
Before April 2027 the pension sat outside the estate entirely. From April 2027 the £900,000 is notional pension property. At 40% that is an inheritance tax charge of £360,000, and every one of the four reliefs above is unavailable to reduce or defer it. Business property relief does not reach inside the wrapper, so the fact that £600,000 of it is the trading premises changes nothing. The instalment option is closed, so the charge is payable at the end of the sixth month after the date of death, in full.
Then the second layer. Because the member died after age 75, the existing income tax treatment of death benefits still applies: the beneficiaries are taxed at their marginal rate on what they draw. AJ Bell’s calculation puts the combined effective rate at up to 64% for a higher-rate beneficiary and 67% for an additional-rate one. The arithmetic is straightforward enough to check — 40% inheritance tax leaves 60%, and 40% income tax on that 60% takes a further 24%.
The number that should worry an accountant is not 64%, though. It is £360,000, due within six months, against a scheme whose largest asset is the building the company trades from. That is not a tax rate problem. It is a liquidity problem with a date on it.
The relief question decides how much is owed. The instalment question decides whether the estate can pay it without selling something the business needs.
Why this lands on the accountant first
HMRC’s final position on liability makes this unusually close to home. Personal representatives are responsible for reporting and liable for paying the inheritance tax due on notional pension property. From the vesting point, beneficiaries become jointly and severally liable alongside them.
In a great many owner-managed situations the personal representative is a family member acting on the practice’s guidance, and sometimes it is a partner of the firm. Either way the person who has to find £360,000 within six months is someone who will telephone the accountant first. The technical note also sets out the timing machinery around this: pension scheme valuations are due within 28 days of a request, and withholding notices remain valid for 15 months after the end of the month in which the deceased died. Those are workable deadlines if the position is understood in advance and awkward ones if it is discovered during probate.
The exemption that is not applied automatically
One detail in the note deserves flagging because it will otherwise be found the hard way. The spousal and civil partner exemption and the charity exemption both continue to exist — but HMRC is explicit that they are not taken into account when calculating the value of the notional pension property. Personal representatives have to claim them separately.
An exemption that must be claimed rather than applied is an exemption that gets missed, particularly by a lay executor working from a valuation figure supplied by a scheme administrator. For a practice, that is a small, concrete, entirely non-regulated thing to have on a checklist.
What a joined-up conversation looks like here
This is a good illustration of why the accountant and the financial planner see different halves of the same client. The practice holds the evidence: the size of the fund, the property inside the scheme, the shareholding that carries relief personally, the estate with no obvious liquidity. What it does not hold is the modelling — whether drawing more now and earlier changes the outcome, how that interacts with the client’s income needs and their income tax position, whether the asset should sit where it currently sits at all.
Those are regulated questions, and the boundary matters in both directions. An accountant noticing that a client’s pension has been deliberately untouched for a reason that expires in April 2027, and saying so, is ordinary professional observation. Recommending what to do about it is not. We set that division out in more detail in who does what, and the wider pattern of things visible in a client file in the signals already sitting in your accounts.
The scale of the gap this sits inside is worth remembering. The lang cat’s State of Advice Report 2025 found that just 9% of UK adults had paid for financial advice in the preceding two years, while 91% of those who did take advice found it valuable — and that the average age of an IFA client is 59. The cohort most exposed to an April 2027 deadline is substantially the cohort least likely to have anyone modelling it. More on that in the advice gap.
Two things worth doing this week
Both are list-building exercises, and both sit entirely within normal practice work.
First, identify the deliberately untouched funds. Clients over 55 with a meaningful pension they have been advised — or have simply decided — to leave alone for estate reasons. That instruction is now working against them, and the window to do anything about it closes on 6 April 2027. This is a list the practice can build from what it already knows without asking the client a single new question.
Second, find the property inside the schemes. Any SSAS or SIPP holding commercial property, and in particular any holding the premises the client’s own company trades from. This is the group where the instalment change bites hardest, because the estate faces a fixed six-month deadline against an asset that cannot be sold quickly and, in many cases, must not be sold at all. Knowing which clients are in that position is worth more than any general briefing on the reform.
What is still uncertain
Two things, and it is worth being precise about which is which. The reform itself is not uncertain — it is in Finance Act 2026 and the commencement date is fixed at 6 April 2027. What remains outstanding is the secondary legislation and the supporting guidance, which HMRC has said will be published for April 2027, and draft regulations on information sharing between schemes and personal representatives, which were set to go out for technical consultation. Until those land, the operational detail of how a personal representative obtains a valuation and settles the charge in practice is less settled than the principle.
The relief question is a different matter. AJ Bell is arguing that denying business and agricultural relief inside a pension is wrong in policy terms, and other bodies may press the same point before April 2027. That is representation, not a signal that the rules will move. Planning conversations held now should assume the rules as drafted, because a client who waits for a change that does not arrive will have spent the entire window waiting.
Common questions
Does this affect clients who were told their pension sits outside their estate?
Yes, and that is the single biggest reason to raise it early. Leaving a pension untouched so it passed outside the estate was mainstream planning for a decade, and a great many owner-managers arranged their drawdown around exactly that logic. From 6 April 2027 most unused pension funds and pension death benefits fall inside the estate for inheritance tax, so the plan and the rule now point in opposite directions. The client has not done anything wrong and nothing needs unwinding in a panic — but the assumption underneath their retirement income sequencing is no longer the assumption HMRC is working to, and someone has to be the person who says so before the position hardens.
Which pension death benefits stay outside the new rules?
HMRC’s technical note confirms two carve-outs. Death in service benefits payable from a registered pension scheme are excluded and remain outside the inheritance tax charge. So are dependants’ scheme pensions paid from a defined benefit arrangement or from a collective money purchase arrangement. Everything else in the unused-fund and death-benefit category is in scope from 6 April 2027. The death in service exclusion matters more than it first appears for owner-managed companies, because a registered group life arrangement is often the one piece of the picture that behaves the way the client already assumes the whole pension behaves. It is worth confirming which category a client’s cover actually sits in rather than inferring it from the policy name.
Why can inheritance tax on a pension not be paid by instalments?
Because of how the legislation defines what is being taxed. HMRC treats the amount brought into the estate as notional pension property, and the member is not treated as owning the scheme’s underlying assets. Notional pension property does not fall within the definition of qualifying property, and the instalment option only attaches to qualifying property — so it is unavailable here even where the pension holds exactly the kind of illiquid asset the instalment rules were designed for. The practical effect is a cash deadline rather than a tax rate problem: inheritance tax is due at the end of the sixth month after the date of death, in one payment, whatever the fund happens to be invested in.
What does this mean for a SSAS or SIPP that owns the trading premises?
It creates a liquidity question that did not previously exist. Holding the trading property inside a small self-administered scheme has been a settled arrangement for many owner-managed businesses, and its illiquidity was never a problem while the fund sat outside the estate. From April 2027 the property’s value forms part of a charge payable within six months of death, with no instalment route and no business property relief to reduce it. The scheme cannot usually sell the premises quickly, and selling them at all means the trading company loses its home. That is a planning problem worth surfacing well before it becomes an executor’s problem.
Where does the accountant’s role stop and the financial planner’s begin?
The accountant is almost always the first professional to see the problem, because it shows up in things the practice already holds: the size of an untouched fund, a property inside a scheme, a shareholding that carries business relief personally, an estate with no obvious liquidity. Naming that and flagging the deadline is ordinary professional work. What follows — modelling drawdown sequencing, weighing an extraction strategy against the client’s retirement income, recommending any change to how a pension is held or drawn — is regulated advice and belongs with an authorised firm. The division is not a formality; it is what lets the accountant raise the subject freely without straying into a recommendation.