You’ve agreed to act as executor. Months later, you’re handed a tax bill for a pension pot you didn’t even know existed. Sound far-fetched? Under new rules, it’s not.

That’s the alarming new reality for Personal Representatives (PRs) under the government’s proposed pension reforms.

Recent draft legislation fundamentally shifts the responsibilities for reporting and paying IHT on pension funds. From April 2027, PRs – not pension scheme administrators (PSAs) – could be legally liable for ensuring that any IHT on death benefits and unused pension funds is paid. And that, frankly, changes everything.

From trustees to PRs: What’s changing?

Most people assume pensions are exempt from inheritance tax or at least outside the remit of an executor’s concerns. That assumption will soon be outdated, as pension assets will be classified as part of your estate from April 2027.

Until now, PRs have typically not needed to worry about pension pots. The burden of reporting and paying IHT was assumed to fall on PSAs or, practically speaking, not at all if the scheme had discretion. But with HMRC forecast to raise an additional £1.46 billion by 2029/30, those days are over.

Under the new rules, PRs must identify, report, and ensure the IHT on pension funds is paid – even if they don’t control those assets. This isn’t red tape – it’s a legal rerouting of responsibility, from pension providers to individuals.

The change creates a new and uncertain landscape for those managing estates, one in which traditional planning may fall short of expectations.

The PR’s burden: Tax without control

The responsibility of a PR used to be clearly defined: managing the estate, settling debts, and distributing assets. Now, they are being asked to act on pension assets that may be entirely outside their purview.

Imagine trying to pay tax on something you can’t access, don’t know exists, and can’t trace easily. That’s the new reality for PRs. Many pension schemes do not communicate proactively, and if the deceased failed to keep records, tracking down dormant pots becomes a nightmare.

If a PR misses even one pension scheme, they could underpay the IHT. Worse, they could be personally liable for any shortfall. That’s a heavy burden for someone likely acting in good faith, often as a favour to a family member or friend.

With personal liability looming, being an executor may feel less like a duty and more like a gamble.

The funding catch-22

Tax is rarely convenient, but it’s even more problematic when you’re required to pay upfront without the funds to do so. This is the bind many PRs will face from 2027 onwards.

To make matters worse, PRs must pay IHT before they can get a grant of probate, but they can’t access the pension funds until after probate. This creates a funding gap. If there’s insufficient cash in the free estate, they may have to fund the IHT themselves or seek loans.

Each week lost in probate can rack up interest, and HMRC doesn’t wait politely. Even relatively simple estates can now take years to administer due to pension-related uncertainty. This practical and financial impasse is something many families will not have anticipated.

A glimmer of relief: Government workarounds for PRs

Thankfully, the government acknowledges that some PRs may struggle to raise enough liquid funds to pay IHT on pension wealth before obtaining probate. To mitigate this, several mechanisms have been suggested ahead of the 2027 changes:

• Direct Payment Scheme (DPS): PRs can instruct banks to release funds from the deceased’s accounts to pay IHT, even before probate is granted.
• Payment by Instalments: For illiquid assets (such as property), IHT can be paid over a period of up to 10 years, helping to ease short-term cash flow issues.
• Pension Beneficiaries to the Rescue: Once appointed, beneficiaries can either pay the IHT directly or instruct the pension scheme administrator to do so on their behalf.
• Grant on Credit: In exceptional cases, HMRC may allow probate to proceed before IHT is paid.

These potential options offer practical help, but PRs must still act promptly, coordinate with pension beneficiaries, and expect that interest will accrue on unpaid tax after six months. 

While these tools may alleviate some pressure, they don’t eliminate the complexity or the personal risk that PRs could face if liabilities go unmet.

Beneficiary problems: Vulnerability and legal dead ends

The rules also create additional issues for vulnerable beneficiaries. In scenarios involving minors or those lacking capacity, the system currently offers no workarounds.

The legislation introduces yet another hurdle: only the beneficiary of a pension can request that the PSA pay the IHT from the pension pot. But what if the beneficiary is a minor or lacks mental capacity? Currently, PRs cannot make that request on their behalf.

This isn’t a minor flaw. It could derail an estate administration and tie up families in needless red tape. In an already emotionally fraught context, these gaps can compound grief with bureaucracy and uncertainty.

The hidden 67% tax trap

It’s not just administrative complications that PRs need to worry about; the actual tax burden on beneficiaries could skyrocket under the new legislation. The new rules have revived concerns about the so-called “double tax” problem. 

Here’s a simplified scenario:

• Estate value: £325,000 (within nil-rate band)
• Pension pot: £500,000

Under current rules, the pension pot is outside the estate. From April 2027, it will be included.

• IHT at 40% on £500,000 = £200,000
• Balance: £300,000
• If the beneficiary is an additional-rate taxpayer, 45% income tax = £135,000
• Net received: £165,000

That’s a 67% effective tax rate on pension assets. It could decimate the legacy intended for the next generation. This turns pensions from a tax-efficient vehicle into a trap for the unwary.

Can PRs be reimbursed? In theory, yes…

There are mechanisms for PRs to reclaim tax paid on behalf of others, but they are cold comfort when you’re personally on the hook for five or six-figure sums.

PRs have a statutory right to seek reimbursement from pension beneficiaries if they have to pay IHT out of the general estate. However, that may require legal action, potentially against family members. It’s awkward, challenging, and in some cases, practically impossible.

Meanwhile, pension funds could have been drawn down, spent, or moved. So even if reimbursement is legally possible, actual recovery is another matter entirely.

Chasing down a pension beneficiary in court? That’s a scenario few executors imagined when they agreed to take on the role.

Should you leave pensions to executors?

Estate planners are already exploring creative solutions to this new problem. One idea gaining traction is naming the executor as the beneficiary of the pension. 

This gives them control and simplifies IHT reporting and payment. But it may clash with personal wishes or undermine other estate planning strategies. 

In reality, this approach must be weighed carefully, as it’s not a one-size-fits-all fix. However, it could be an essential part of proactive estate planning going forward.

In specific scenarios, this may be a tactical option that warrants further discussion with professional advisers.

Practical advice for clients and PRs

For those looking to protect estates and themselves, the best defence is a well-informed plan. These steps can help reduce exposure to risk and associated costs.

1. Maintain an up-to-date list of pensions – Encourage clients to review their pension arrangements on a regular basis.
2. Be cautious about agreeing to act as PR – Especially where large or complex pensions are involved.
3. Plan early – Consider lifetime gifting, earlier drawdowns, or rebalance estate and pension values.
4. Take professional advice – The rules are evolving, and personalised guidance is essential.

These actions aren’t just practical; they may become essential in the new IHT regime.

Conclusion: New risks require new thinking

The role of a PR is changing from administrative steward to potential tax underwriter. What once felt like an honour now resembles a legal hazard.

Acting as a Personal Representative was once a favour. Under the new rules, it’s becoming a legal and financial minefield. The risk of personal liability, funding gaps, and administrative roadblocks should make anyone think twice.

Whether you’re planning your estate or preparing to serve as an executor, these changes require your attention and action.

At Wilkins Southworth, we help clients navigate complex tax issues and legislative changes. If you’re concerned about how the pension IHT changes might affect your estate or your role as an executor, get in touch. It’s better to plan now than litigate later.

The stakes have never been higher, but neither has the opportunity for proactive, professional tax planning. If you’d like to discuss your position in more detail, please do not hesitate to get in touch.