Tax due before the money can be reached: STEP asks the Treasury to fix the 2027 pension IHT rules

On 23 September 2026, Pensions Age and Today’s Wills and Probate reported that STEP, the professional body for trust and estate practitioners, had written to James Murray, the Financial Secretary to the Treasury, about the rules that bring unused pension funds and death benefits within inheritance tax from April 2027. The letter sets out eight practical problems and asks for each to be fixed. It lands five weeks before the Autumn Budget on 28 October.

STEP is not asking for the policy to be reversed. The measures were announced at the Autumn Budget 2024, and the letter says plainly that its proposals would not alter the objective of bringing pensions into the scope of the tax. The argument is about whether the regime can be operated by the people who will have to operate it.

The sequencing problem

Prospective personal representatives can ask a pension scheme for information, but cannot require the scheme to pay the inheritance tax attributable to the pension directly to HMRC. The tax falls due before probate is granted, and the pension cannot be released until probate has been obtained. STEP calls this a catch-22 and asks for the Pensions Direct Payment Scheme to be extended to prospective personal representatives.

Timing runs through most of the other points. Death benefits can take many months to be distributed, and in some cases close to two years, so STEP wants the existing instalment provisions extended to the tax attributable to pension assets where those assets would have qualified had they sat in the free estate. Pension assets are valued at the date of death but may be worth less when sold, and the letter asks for loss-on-sale relief to cover that gap. Schemes may withhold up to half of a fund for fifteen months, which STEP says can expire before the final tax position is known; it proposes twenty-four months instead.

The rest of the letter

Two items will matter most to families with operating assets. STEP asks that agricultural and business property relief apply to qualifying assets held inside a pension on the same terms as if they were held directly. It also wants a simpler route for pensions discovered after an estate has been distributed, taxing them as standalone assets rather than reopening the whole estate. The remaining points concern interest accruing on unpaid tax where representatives have behaved reasonably, insufficient withholding protections, and the effect of the regime on incentives for charitable giving.

Emily Deane, STEP’s technical counsel and head of government affairs, said families and businesses need “certainty - policies that are properly thought through, joined up and actually workable”, and that recent changes to inheritance tax, pensions, reliefs and international rules have been made without regard to how they interact. STEP also cites its own practitioner data, reported by Today’s Wills and Probate: two-thirds of UK practitioners have seen more clients revisit their estate plans, and 65 per cent name tax policy change as the most common trigger for doing so.

What it means for family offices

For most wealthy families the pension is not the significant asset. The administration around it still is. A family office that expects to help wind up a principal’s estate now has to plan for a liability crystallising before the asset funding it is available, which is a liquidity question rather than a planning one: which account pays, and how the estate is put back in funds afterwards.

There is a second, quieter consequence. If acting as an executor means tracing pension arrangements across several providers, dealing with them before probate and carrying personal exposure for tax on assets someone else controls, more families will want a professional executor or a trust corporation named in the will rather than a relative who agreed to it years ago. That is a decision to take before April 2027, not after a death. Whether the Treasury moves on any of STEP’s eight points will be visible on 28 October.

Sources: Pensions Age; Today’s Wills and Probate; Grant Thornton.