HMRC April 2027 rule change 'could leave families with more tax than money'

HMRC April 2027 rule change 'could leave families with more tax than money' A new HMRC rule lands in April 2027 and experts say it could trap families with a tax demand Share Article Share Article Facebook X LinkedIn Reddit Bluesky Email Copy Link Link copied Add us as preferred source Comments By Steven Smith , Content Editor 04:51, Sun, Nov 8, 2026 Experts have raised worries over the change (Image: howtogoto via Getty Images) Experts have raised concerns about a potentially overlooked consequence of pensions becoming subject to inheritance tax from April 2027.

Families could be left with more tax than money because, unlike shares and property held directly, pension investments won't qualify for inheritance tax loss-on-sale relief. Financial experts have explained the situations that families could find themselves in at an already difficult time as they deal with the loss of a loved one. It could leave them with a major headache and even become contentious. However, HMRC estimates that, of the taxpaying estates affected by the reforms in tax year 2027 to 2028, the pension component makes up less than 5% of the net value of the estate in more than half of cases and less than 60% of the estate in almost all cases.

Article continues below ADVERTISEMENT Scott Gallacher, director of Leicester-based Rowley Turton , said: "While unlikely to be a common occurrence, in certain circumstances inheritance tax could exceed the value of pension funds ultimately received, particularly where higher-risk investments suffer substantial losses following death. Who bears that shortfall could become contentious, especially where beneficiaries have little control over the investments.

"Pension trustees, providers and advisers will need to reconsider how pension investments are managed following death. Leaving everything invested may no longer be appropriate, particularly where there's a substantial IHT liability. Get personal finance news, money saving tips and advice plus selcted offers and competitions I would like to receive emails from the Daily Express featuring our latest products, services, offers, and promotions from across the Reach Plc family .

Subscribe Invalid email You agree you are 18 or over. We use your sign-up to provide content in ways you've consented to and to improve our understanding of you. This may include adverts from us and third parties based on our knowledge of you. You can unsubscribe at any time. More Info . "Commercial property and other illiquid investments present an even greater challenge, as selling quickly may be impossible or financially damaging. Ultimately, I believe HMRC should extend IHT loss-on-sale relief to pensions.

Otherwise, families could face tax bills based on wealth they never actually receive." Article continues below ADVERTISEMENT Conversations before death could pay dividends for families (Image: Fiordaliso via Getty Images) 'I took a blood test after weeks of bloating and results were eye-opening' New pension 'review now' alert ahead of big April 2027 rule change Tax on money you 'don't even receive' Rikesh Bhatt, founder and financial planner at Telford-based 8 Financial Planning , said: "Nobody should pay inheritance tax on money their family never actually receives.

From April 2027 that can happen with pensions, because the tax is based on the value at death, not on what's left when it's finally paid out. Article continues below ADVERTISEMENT "Shares and property held directly can get loss-on-sale relief, so pensions should too and HMRC should fix that before the rules start rather than after families get caught out. I wouldn't make selling everything straight after a death the default either, because that can turn a short-term dip into a permanent loss.

"The better answer is planning while you're alive: know roughly what the IHT bill on your pension could be, think about where the money to pay it will come from and keep your nominations up to date. SIPPs holding commercial property need the most thought, because you can't sell a building in a few weeks to meet a tax bill." 'Serious flaw' in new HMRC rules Nouran Moustafa, practice principal and Independent Financial Adviser at Roxton Wealth , said: "Imagine inheriting a £1 million pension, watching its value collapse, and discovering HMRC still expects tax based on its original value.

That's a serious flaw in the new inheritance tax rules. "From April 2027, pensions will generally be valued at death for inheritance tax, without loss-on-sale relief if investments subsequently fall. Personal representatives are responsible for paying the tax, with beneficiaries potentially sharing liability. "But automatically selling investments after death isn't necessarily the answer. It could crystallise losses unnecessarily. For SIPPs holding commercial property, the problem is even worse.

You can't simply sell a building overnight to pay HMRC. "I'd support extending appropriate loss-on-sale relief to pensions. The government shouldn't collect inheritance tax on wealth that no longer exists when beneficiaries receive it." 'Not HMRC's mistake the fix' Harvey Dhillon, founder and CEO at Zmartly , said: "Yes, from April 2027 the tax on a pension can end up bigger than the fund itself, though only after a steep fall. The pension is valued just before death and the bill doesn't shrink when the fund does.

Trending "If the fund can't cover it, the executors can be made to pay the gap from the rest of the estate, so it can land on whoever inherits the house or the savings. The law keeps the scheme's trustees out of the tax bill. "Whether to sell fast, or sue, is for an adviser or a lawyer. Own a commercial building directly and the tax on it can be paid in 10 yearly instalments. "Inside a SIPP the whole bill falls due within months, sold or not, but it can be paid from money outside the pension, so line that up early.

Leaving pensions out of loss relief is a mistake. "But it isn't HMRC's to fix: the relief is written into tax law, so changing it takes the Treasury and a Finance Bill. The latest Budget announced tweaks to the new rules and still didn't fix it." An HM Treasury spokesperson said: “Around 90 per cent of estates each year will continue to pay no inheritance tax after the reforms. Loss-on-sale relief applies where certain assets owned by the deceased, such as property or shares, are later sold at a loss.

That isn’t what happens with a pension, so the relief doesn’t apply in the same way." HMRC Pension Inheritance tax Share Article Share Article Facebook X LinkedIn Reddit Bluesky Email Copy Link Link copied Add us as preferred source Comments