Pensions Bulletin 2026/35

HMRC provides further detail on IHT changes for pensions 

As promised a few weeks ago (see Pensions Bulletin 2026/31), HMRC has now published a second technical note on the forthcoming changes to the Inheritance Tax (IHT) regime which will bring most unused pension funds and death benefits within the scope of IHT for deaths occurring on or after 6 April 2027. This builds on HMRC’s first technical note first published on 11 May 2026 (see Pensions Bulletin 2026/22).  

The note - which HMRC stresses is NOT draft guidance - provides further detail, together with illustrative case studies, on the operational framework supporting the new regime, including information sharing between pension scheme administrators (PSAs), insurers and personal representatives (PRs).  

The note also gives more detail on two key mechanisms: 

• Withholding notices: A PR or prospective personal representative (PPR) may issue a withholding notice to the PSA. This prevents the scheme from making payments to a non-exempt beneficiary of more than 50% of their benefit entitlement while the tax position is established by the PR. The notice can apply for up to 15 months after the end of the month in which the member died. Failure to comply with a valid notice can make the PSA jointly liable for any relevant IHT.  
• Pensions Direct Payment Scheme: PRs and pension beneficiaries can issue a payment notice to the PSA, requiring the scheme to pay IHT and any associated interest directly to HMRC from benefits remaining in the scheme, provided the total payment is at least £1,000. A PPR cannot issue a payment notice, and pension beneficiaries can only issue the payment notice in respect of their own IHT liability from benefits payable to them from that scheme. 

For a withholding notice or a payment notice to be valid, it must contain, as a minimum, the information prescribed by HMRC in guidance. HMRC has included draft templates for both notices in annexes to the Technical Note which show the information HMRC expects to prescribe, but they are not yet final forms or guidance.  

The note also sets out details about when and how PRs can apply for clearance to be discharged from liability for IHT relating to previously undiscovered pension benefits.  

HMRC is preparing separate guidance to assist PSAs in evidencing a PR or PPR’s authority and identity to act on behalf of the estate, and a draft is annexed to their second technical note.  

HMRC has also set out an indicative timetable for further material ahead of implementation. It expects to issue a third technical note during autumn 2026, covering international cases, the IHT/income-tax interaction, intestacy, charities and trusts. Draft guidance is expected to be shared with industry during autumn and winter 2026/27, alongside further regulations on split schemes and excepted estates. Public-facing communications are planned for winter through to spring 2027, with final guidance and supporting materials due in spring 2027. 

HMRC warns on “toxic” assets and sets out timetable for compensating “net pay” members 

Following queries from the industry, HMRC’s Pension Schemes Newsletter 184 focuses attention on the disposal of non-standard, or “toxic” assets held by registered pension schemes. HMRC stresses that scheme administrators must undertake appropriate due diligence when disposing of such assets. In particular, where an asset is sold to a member, sponsoring employer or connected person for less than its arm’s-length value, the difference will be treated as an unauthorised payment. This may result in tax charges for the member and a scheme sanction charge for the scheme administrator. 

The disposal of an asset which the scheme administrator has, following appropriate due diligence, identified as genuinely worthless is unlikely to attract unauthorised payment charges. However if subsequent information indicates that an asset had a higher value at the point of sale, this could lead to charges. Transferring assets to another registered pension scheme may be an alternative where the recognised-transfer conditions are met. But particular care is needed where a pension is already in payment. 

The newsletter separately highlights that non-statutory clearance from HMRC is available only where there is genuine uncertainty in applying the legislation to a specific scheme’s circumstances. Applications must explain the alternative interpretations, the resulting tax uncertainty and the relevant unclear legislation or guidance. Accordingly, the newsletter also notes that while non-statutory clearance can be sought where there is genuine legislative uncertainty regarding the disposal of assets, it cannot be used to obtain HMRC’s view on an asset’s value, or to confirm the tax treatment of a proposed disposal. 

The newsletter also provides a further update on the low earner’s pension payment, which is intended to address the lower tax relief granted to qualifying low earners in net pay arrangements when compared to relief-at-source schemes (see Pensions Bulletin 2026/25). HMRC expects to begin making payments in respect of 2024/25 contributions in the coming months, with a phased rollout continuing into early 2027. Eligible individuals will be contacted directly by post or through their personal tax account; employers, payroll teams and scheme administrators do not need to take action.  

The newsletter also mentions the proposed NMPA transitional regulations, intended to preserve authorised-payment treatment in certain cases when the NMPA rises to 57 from 6 April 2028 (see Pensions Bulletin 2026/32); and proposed rules permitting DB scheme surplus payments directly to members (see Pensions Bulletin 2026/28). The latter payments would be taxable pension income, with a new real time information (RTI) data item due to be introduced from April 2027. HMRC also notes the publication of its latest private pension statistics and reminds administrators of the importance of timely pension savings statements.