Leaving the pension alone and spending other assets first was correct under the rules as they stood. A client who ordered their retirement income that way now has a plan based on rules that will no longer apply, and the practice that prepares their accounts can see which clients are still running it.
What changes on 6 April 2027
Finance Act 2026 brings most unused pension funds and pension death benefits within the estate for inheritance tax for deaths on or after 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 in what the trust register tells you before April 2027.
Two exclusions apply. 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 introduces the term 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 drafting is why four reliefs fall away.
The reliefs that do not apply inside the pension
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. It follows that:
Rachel Vahey, head of public policy at AJ Bell, described the effect as a two-tier tax system. On the reliefs point the primary source supports that description: identical assets, different treatment, decided by whether they sit inside a pension.
The figures for one estate
Illustration, using a made-up client. An owner-manager dies in 2028, aged 78, leaving:
- 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 used elsewhere in the estate, and the estate passes to adult children.
Because the member died after age 75, the existing income tax treatment of death benefits also 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. 40% inheritance tax leaves 60%; 40% income tax on that 60% takes a further 24%.
For the accountant the figure is £360,000, due within six months, against a scheme whose largest asset is the building the company trades from.
The relief question decides how much is owed, and the instalment question decides whether the estate can pay it without selling the premises.
Who is liable
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 an owner-managed company the personal representative is a family member, and sometimes a partner of the firm. Either way, the person who has to find £360,000 within six months will telephone the accountant. The technical note sets out the timing: 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 deadlines are workable if the position is known in advance.
The exemptions that must be claimed
The spouse or civil partner exemption and the charity exemption continue to apply. HMRC's note states that they are not taken into account when calculating the value of the notional pension property, and that personal representatives have to claim them separately. That is a line for the practice's probate checklist.
What the accountant holds and what the financial planner holds
An accountant noticing that a client's pension has been left untouched for a reason that ends on 6 April 2027, and saying so, is observation. Recommending what to do about it is regulated advice. Who does what sets out the split, and what a client file already shows sets out the other facts in the file.
The FCA's Financial Lives 2024 survey found that 8.6% of UK adults had taken regulated financial advice in the previous twelve months, and 13% of the self-employed. The advice gap sets out who that leaves.
What is still uncertain
The reform is in Finance Act 2026 and the commencement date is fixed at 6 April 2027. The secondary legislation and supporting guidance, which HMRC has said will be published for April 2027, and the draft regulations on information sharing between schemes and personal representatives, are outstanding. Until they are published, the operational detail of how a personal representative obtains a valuation and settles the charge is less settled than the principle.
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 a policy argument, and the law has not changed. Planning conversations held now should assume the rules as legislated.
