Pensions and IHT: the emerging relationship between executors and administrators

The treatment of pensions on death will undergo a fundamental shift from 6 April 2027. Pensions have long been regarded as a flexible and tax‑favoured method of passing wealth to future generations, usually sitting outside the estate for Inheritance Tax (“IHT”). 

The upcoming changes alter this position significantly. Quite apart from what may be a significantly increased financial IHT burden, the new regime places executors at the centre of the reporting requirements for pension death benefits, while pension scheme administrators take on new statutory duties designed to support that reporting. As a result, a closer and more coordinated relationship between the two roles will become essential.

What’s changing – and what’s still excluded

Under the new rules, most unused pension funds will be pulled into the deceased’s estate for IHT. This applies across defined contribution schemes and many defined benefit arrangements. The rationale is to bring pensions into alignment with other inherited assets, effectively removing the planning advantages that previously existed.

Some important exclusions remain. Death‑in‑service benefits are still outside the scope for IHT, as well as dependants’ scheme pensions from defined benefit or collective money purchase arrangements. Furthermore, spousal and charity exemptions will continue to apply.

A key change is that executors will assume responsibility for reporting and paying any IHT due on pension assets. Pension scheme administrators will be given new statutory duties to support executors in this process.

Valuation of pension assets

Pension assets will generally be valued for IHT purposes based on the sum that the scheme administrator determines is payable. This straightforward principle can become more complex in practice, particularly where the pension contains illiquid or difficult‑to‑value investments such as commercial property. Under the new rules, executors must incorporate these values into the estate’s IHT account, but they cannot do so until administrators have concluded their own internal processes.

Importantly, these valuations will not benefit from reliefs – such as Business Property Relief or Agricultural Property Relief – that might otherwise apply if the same assets were not held in a pension wrapper. This can create significantly larger tax exposures and heightens the importance of timely and accurate information from administrators. It may drive where this is possible the removal of such assets from pension schemes into (or often back into) personal ownership.

The new working dynamic between executors and administrators

The post‑2027 framework eliminates the historical division between pension administration and estate administration. Executors are now responsible for reporting pension death benefits, but they have no direct control over how quickly administrators can confirm entitlements, verify nominations or expressions of wish, or complete their governance steps. Administrators, meanwhile, must discharge new duties that place them in a more outward‑facing role, providing information and sometimes facilitating tax payments.

This creates a new form of interdependence. Executors will be unable to progress certain stages of the estate administration until administrators have provided the necessary information. Administrator timelines – previously relevant only to beneficiaries – now have direct implications for the estate’s compliance position.

Administrators may also have to withhold up to half of the taxable benefits temporarily. While this protects HMRC’s position, it can constrain liquidity within the estate during a period when executors face immovable tax deadlines. Executors may request that administrators pay IHT directly from the pension benefits, but again, this requires coordinated workflows and an understanding of each party’s responsibilities.

Liquidity and timing risks

These reforms introduce several practical challenges. Executors face statutory deadlines that do not adjust to account for slow‑moving pension processes. Where pension arrangements hold illiquid assets, valuations may take time; where administrators must exercise discretion, decisions may not be immediate; and where documentation is incomplete, delays may follow. Executors may therefore find themselves responsible for IHT on pension assets before they have sufficient clarity – or access to funds – to settle the liability.

In estates where the pension is a substantial component of the deceased’s wealth, these timing mismatches can produce liquidity pressures. Executors may need to consider borrowing, bridging arrangements or alternative funding sources if delays in pension payments hinder their ability to settle tax.

The 2027 reforms create a more integrated, collaborative environment for pension death benefits. Executors now carry the legal responsibility for reporting and settling IHT on pensions, while administrators become essential contributors to the executor’s ability to meet those obligations. The success of the estate administration will depend on early engagement, clear communication, and realistic expectations about timing.

This represents a significant departure from the historic separation between the administration of pensions and the administration of estates. Understanding this new relationship – and planning for its practical consequences – will be central to navigating the post‑2027 landscape effectively.