Why Pension Inheritance Tax Changes Could Spark Family Disputes
Recent proposals reported by the Financial Times have highlighted a major shift in how
unused pension pots may be treated for inheritance tax purposes from 2027 onwards. The
changes could have significant implications for families, executors, and beneficiaries — and
may lead to difficult disputes if proper planning is not in place.
At Your Wills Team, we believe these developments underline the importance of clear
estate planning, properly drafted wills, and open conversations with loved ones.
What Are the Proposed Changes?
Under current rules, many pension pots can be passed on outside of a person’s estate for
inheritance tax (“IHT”) purposes. However, the proposed changes would mean unused
pension funds could become part of the taxable estate when someone dies.
The article explains that personal representatives (usually executors) may be able to ask
pension providers to withhold part of a pension fund while any inheritance tax liability is
calculated and settled. In some cases, up to 50% of the pension benefits could temporarily
be retained.
This could create delays for beneficiaries who may have expected to receive pension funds
quickly and in full.
Why Could This Cause Family Tensions?
Money and bereavement are already an emotionally difficult combination. When
beneficiaries are expecting an inheritance but discover that funds are being delayed,
reduced, or used to settle tax liabilities, disagreements can easily arise.
Potential areas of conflict include:
• Beneficiaries questioning why money has been withheld
• Disputes between children from different relationships
• Concerns over whether executors are acting fairly
• Arguments about who should bear the tax burden
• Frustration over delays in administering the estate
Where pensions form a substantial part of a person’s wealth, these issues may become
particularly sensitive.
The Importance of Proper Estate Planning
These proposed changes reinforce why comprehensive estate planning is no longer
something only for the very wealthy.
A well-structured estate plan can help:
• Reduce uncertainty for loved ones
• Clarify your intentions
• Minimise the risk of disputes
• Ensure executors understand your wishes
• Explore legitimate inheritance tax planning opportunities
Reviewing your arrangements regularly is especially important if:
• you have significant pension savings;
• you are part of a blended family;
• you own property;
• you have business interests; or
• your circumstances have changed in recent years.
Wills Are Only Part of the Picture
Many people assume their will covers everything — but pensions often sit outside the will
itself. That means beneficiary nominations, pension expressions of wish, trusts, and lasting
powers of attorney can all play an important role in protecting your family and ensuring
your wishes are followed.
Without coordinated planning, families may face unnecessary complications at an already
difficult time.
What Should You Do Now?
Although these proposals are not yet fully implemented, now is an excellent time to review
your estate planning arrangements.
You should consider:
• Reviewing your current will
• Checking your pension beneficiary nominations
• Assessing your likely inheritance tax exposure
• Considering trust arrangements where appropriate
• Discussing your wishes openly with your family
How Your Wills Team Can Help
At Your Wills Team, we help individuals and families across the UK put clear, practical plans
in place for the future. Whether you need a straightforward will or more comprehensive
inheritance tax planning guidance, our team can help you navigate these complex issues
with confidence.
Website: https://yourwillsteam.org.uk
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