Most people filled in a pension nomination form years ago and have not looked at it since. Until now, that has often not mattered much for tax. From April 2027 it matters a lot more.
What is changing?
For deaths on or after 6 April 2027, most unused pension funds and pension death benefits will count as part of your estate for inheritance tax. The rules are now law in the Finance Act 2026.
Inheritance tax is charged at 40% on the value of an estate above the £325,000 threshold. Many people with a home, savings and a pension will now be over it.
Some benefits stay outside the new rules. These include death-in-service lump sums from your current job and pensions paid to dependants from a final salary scheme.
Why the nomination form matters
A nomination form, sometimes called an expression of wish, tells your pension scheme who you would like to receive your pension when you die. With most personal and workplace pensions, the scheme makes the final decision. Schemes usually follow your wishes, but they do not have to. A clear and current form makes their decision quicker and more likely to match what you want.
From 2027 the form also shapes the tax bill. Here is why:
- Spouse or civil partner. Pension money that passes to your husband, wife or civil partner is normally free of inheritance tax. Money that passes to children or others may not be.
- Charities. Death benefits paid to a registered charity stay free of inheritance tax.
- Income tax as well. If you die before 75, beneficiaries can usually take the pension free of income tax, within limits. If you die at 75 or over, they pay income tax on what they draw, on top of any inheritance tax.
So the choice between your partner, your children, a trust or a charity now has a real cost attached to it. An out-of-date form, perhaps one that still names a former partner, could send money to the wrong person and cost your family more tax.
Your executors will need to find your pensions
Under the new rules your executors, not the pension scheme, are responsible for reporting and paying any inheritance tax on your pensions. They must contact every scheme, get a value, and report it to HMRC before they can apply for probate.
There is some help. Beneficiaries or executors can ask a pension scheme to pay the tax straight to HMRC from the pension. Executors can also ask a scheme to hold back up to half of a beneficiary’s payment for up to 15 months while the tax is worked out. Even so, the more organised your records, the faster your family will be paid.
Five things to do now
- List every pension you have, including old workplace schemes. Write down the scheme name and policy number.
- Check the nomination form on each one. Ask the scheme for a copy if you are not sure.
- Update it after any big change: marriage, divorce, a new partner, a death in the family, or a new child or grandchild.
- Think about who should come first. Leaving pension money to a spouse or civil partner first may delay the tax. Leaving it to children may make sense for income tax. Each family is different.
- Look at your will at the same time. Your will and your pension forms should work together. Your executors need to know where everything is.
Our sister firm, Abacus Advice Wills & Estates, has written a short guide to choosing executors, who will now carry this extra work. You can read it at abacuswills.co.uk.
Talk it through
If you would like us to look at your pensions and nomination forms alongside your wider inheritance tax position, we can start with a free first chat. Call Mike on 01892 320449.
Written by Mike Hardy DipFA, Abacus Advice Ltd, Tunbridge Wells.
Important information
This article is general information, not personal advice. The value of pensions and investments can fall as well as rise, and you may get back less than you put in. Tax rules can change, and how they apply depends on your circumstances. The Financial Conduct Authority does not regulate will writing or most tax and estate planning. Abacus Advice Ltd is authorised and regulated by the Financial Conduct Authority, firm reference number 402725.
