The trust and estate body warned that planned reforms could delay probate, increase costs and burden bereaved families
STEP has urged the government to simplify planned inheritance tax rules on pensions, warning that the proposed framework could create significant administrative burdens for personal representatives, pension scheme administrators and bereaved families.
The professional body for trust and estate practitioners was responding to HMRC’s recent technical note and the government’s consultation on inheritance tax on pensions information-sharing regulations. From April 2027, most unused pension funds and pension death benefits will be included in the value of a deceased person’s estate for inheritance tax purposes.
STEP said the rules apply only to pension death benefits and do not extend to death-in-service schemes. While it welcomed some improvements in HMRC’s technical update, it said the proposed framework remained “fundamentally flawed”, overly complicated and difficult to operate in practice.
The organisation warned that the changes could cause significant probate delays, increase costs, deter people from acting as executors and create legal risks for those administering estates. It said bereaved families could also face unintended tax consequences, potentially leaving beneficiaries with less than the deceased intended.
Emily Deane TEP, STEP’s technical counsel and head of government affairs, said: “The government has made genuine progress in addressing some of the industry’s initial concerns, and the additional detail provided in its recent technical note is helpful. However, these changes significantly increase the burden on executors who are navigating the loss of a loved one.”
She added: “At what is already a difficult time, individuals may be expected to track down multiple pension arrangements, engage with providers before probate, and deal with complex and evolving tax requirements. What is needed is a fair system that works for all parties involved, and without simplifications, there is a real risk of delays, higher costs and growing reluctance to take on the executor role.”
STEP said HMRC’s technical note addressed some concerns about personal representatives being liable for inheritance tax on pensions they do not control, but only in limited circumstances and subject to restrictions. It said the proposals still left ordinary executors exposed to uncertainty, particularly where they must obtain information from several pension providers.
One concern is automatic interest. STEP said payment notices cannot be submitted until probate or letters of administration have been granted, meaning families could be penalised with interest on unpaid inheritance tax because of normal administrative processing times.
The body also warned of timing mismatches. Pension scheme administrators may take up to two years to determine beneficiaries, while withholding notices would cease to be effective 15 months after the end of the month of death. STEP said this could allow pension benefits to be distributed before personal representatives can issue a payment notice.
STEP also raised classification and cash-flow risks. It said pension providers and personal representatives may not have enough information early on to know whether a beneficiary is exempt from inheritance tax, creating a risk of over-withholding or under-withholding tax. Without a workable direct payment system, inheritance tax may initially have to be paid from the deceased’s free estate before being recovered from pension beneficiaries.
Ian Bond TEP, a member of STEP’s UK Technical Committee and head of legal at Dignity Legal Services, said the framework should be simplified so tax can be paid “fairly and practically from pension funds themselves”, rather than leaving executors and bereaved families to manage liabilities on assets they may not control.
STEP has recommended that inheritance tax should be calculated and paid at pension fund level. It said the existing Direct Payment Scheme should also be extended so pension scheme administrators can pay inheritance tax directly to HMRC from pension funds within six months of death.
The body also proposed an automatic grant on credit where inheritance tax is paid by a pension scheme administrator, arguing that families should not be penalised for delays outside the control of personal representatives.
Jo Summers TEP, a STEP member and partner at Jurit, said pensions were not always easy to identify and that getting consistent, timely information from different providers could be challenging. She warned that executors could be left managing several moving parts while tax deadlines run ahead of the information they need.
Deane said the reforms were going ahead but that there was still time to make them work better in practice. She said STEP would continue engaging with HMRC and pressing for simplification, clarity and fairness.