Grieving families could be forced to wait more than a year to receive inherited pension savings due to a significant rule change announced in the latest Autumn Budget.
New Rules Create Inheritance Tax 'Nightmare'
The Labour government, under Chancellor Rachel Reeves, has extended inheritance tax to include unspent pension wealth from April 2027. This move, confirmed in her second Budget last week, means retirement pots could face death duties of up to 40 per cent.
Under the new system, pension scheme administrators will be permitted to withhold up to 50 per cent of a deceased person's pension from their beneficiaries. This money will be held back for potentially 15 months while HM Revenue and Customs calculates the exact inheritance tax bill owed.
Significant Delays and Eroding Confidence
Financial experts have warned that the changes will create severe difficulties for families dealing with bereavement. Andy Butcher, of wealth manager Raymond James, stated the rule change would "create significant issues for some families".
"Funds are readily accessible in the event of death, and can often be a handy way to pass money to beneficiaries without being tied up in a potentially lengthy probate process," he explained. "If this is no longer the case, it may lead to a further erosion of confidence in the pension market."
Balancing Obligations with Practicality
While the rules aim to provide clarity for personal representatives, they come with a heavy cost in time. Rish Sareen, of probate platform Trustestate, noted: "This change gives personal representatives greater reassurance in meeting their legal obligations around inheritance tax, but it may also result in delays for pension beneficiaries."
The prospect of a lengthy administrative process at a time of personal loss has been sharply criticised. Rachel Vahey, of stockbroker AJ Bell, described the situation as a "tax admin nightmare of the worst kind, at the worst possible time" for thousands of future families.
Unless HMRC alters its approach to applying inheritance tax to pension funds, beneficiaries face a prolonged wait to access funds that were previously considered a relatively straightforward part of an estate.
