Scheme pays, PRs pay, or the beneficiary pays: the three IHT payment routes

The tax on a pension is due on the usual inheritance-tax timetable — the end of the sixth month after death. The personal representatives are the ones who have to report and pay it, but the actual cash can reach HMRC in more than one way. There are three routes. They are set out in a fixed order below and none is “best” — which one fits depends on the estate, the scheme and the family.

The three routes

1. The personal representatives pay. They settle the bill from the free estate, then get the pension’s share back from the beneficiary — either as a reimbursement or by giving them a smaller share of the estate. The account has to keep track of that, because the beneficiary becomes jointly liable once their pension benefit is paid out.

2. The scheme pays HMRC. A personal representative, or a beneficiary whose benefit has been decided, can hand the scheme a Pensions Direct Payment Scheme notice. This is optional. The notice has to name an exact amount of at least £1,000, stay within the tax and interest on the available benefits in that scheme, and tick the other validity boxes. A valid notice is paid by the scheme within 35 days, and the remaining pension benefit shrinks by that amount (IHTA 1984 s.226B).

3. The beneficiary pays. A beneficiary can pay their share of the tax straight to HMRC from non-pension money, or reimburse the personal representatives. One thing to watch: if a post-75 benefit is drawn and income tax is charged on the whole amount first, the beneficiary may have to sort out the inheritance-tax-related income reduction with HMRC afterwards. The guidance for that is still to come.

Holding benefits back is not a fourth route

Where a personal representative knows or reasonably expects tax to be due, they can send the scheme a separate notice telling it to hold back up to 50% of each affected beneficiary’s share. Each scheme gets its own notice. It can be given from the date of death and bites when the scheme receives it; anything already paid out is untouched. It ends at the earliest of the notice being withdrawn, the tax and interest being paid, or 15 months after the end of the month of death.

Holding money back just protects it while the bill is assembled — it does not send anything to HMRC. The actual payment then uses one of the three routes above. Excluded benefits, and benefits going to an exempt recipient, are not caught by the hold-back.

Route and liability are two different things

The route just answers where the cash comes from. It does not change which estate, scheme or beneficiary created the tax in the first place. That split is explained in how inheritance tax is split between the estate and each pension.

Start with the pension death-benefit overview and the April 2027 flagship guide. Use the Pension IHT calculator for the estate comparison before reviewing the payment route. For planning and illustration only; this guide does not select a route or give advice.

Finance Act 2026 · IHTA 1984 ss.226A–226B · HMRC “Inheritance Tax on pensions” technical note §§2.3, 6–7 · Royal London · M&G / Professional Paraplanner