How inheritance tax is split between the estate and each pension from April 2027

From 6 April 2027, the estate the personal representatives report to HMRC includes the free estate and most unused pension funds and death benefits. The rules call that pension value notional pension property. It goes into one overall inheritance-tax bill — but the tax has to be traceable back to each pension and each person who inherits. Here is how that works, and where HMRC has still to fill in the detail.

It starts pension by pension

The personal representatives track down every pension and ask each scheme for its value at the date of death. HMRC’s technical note says the scheme’s reply includes that value and how it splits between exempt and non-exempt beneficiaries. Where a fuller inheritance-tax account is needed, the scheme also gives each beneficiary’s details and the amount going to them.

From one bill to each pension’s share

The inheritance tax is worked out on the estate as a whole — all the assets, the exemptions and the nil-rate bands together. Only then is it traced back to the property it belongs to. That per-pension figure matters: it caps what a scheme can be asked to pay directly and sets the most that can be recovered from a beneficiary.

Here is the catch. The law says tax has to be traced to each pension, but HMRC has not yet published the detailed pension-attribution calculation or the guidance and tools behind it. Provider examples doing the rounds may show one way to split the estate-wide bill, but that is a modelled interpretation, not final HMRC arithmetic. Do not apply a headline rate independently to every pot, and do not present any split as the official answer. The estate’s nil-rate bands, where each benefit is going and any exempt property can all move the total before a pension share is even worked out.

A different rule operates inside a scheme. When it divides a beneficiary’s share for a hold-back notice, or spreads a personal-representative-directed payment across beneficiaries, Finance Act 2026 says those specific steps use a just and reasonable basis. That is a beneficiary-level tidy-up — not the same thing as modelling how much of the whole bill belongs to each pension.

Who is on the hook

The personal representatives report and are liable to pay the tax on the pension value. Once the scheme decides who receives a discretionary benefit, that value is treated as belonging to the beneficiary, and they become jointly liable for the tax on their share. A scheme itself normally owes nothing — unless it ignores a valid hold-back or payment notice.

The overview is in pensions, death benefits and inheritance tax; the enacted scope is in pensions and inheritance tax from April 2027. The Pension IHT calculator labels its pension allocation as modelled and pending HMRC’s detailed calculation guidance. It does not replace the scheme values or the personal representatives’ account. For planning and illustration only; not advice.

Finance Act 2026 · IHTA 1984 ss.150A, 226A–226B · HMRC “Inheritance Tax on pensions” technical note §§2.2, 5.2–5.3, 6.5, 7.4 · Royal London · abrdn