How to complete IHT409: pensions and Inheritance Tax explained

UK registered pension schemes are structured so that death benefits are held in discretionary trust by the trustees.

The member can complete an 'expression of wishes' (or 'nomination of beneficiaries') form telling the trustees who they would like to receive the benefits — but the trustees are not legally bound to follow it.

Because the member could not compel payment, HMRC does not treat the uncrystallised fund as part of the estate.

Although trustees are not bound, they almost always follow the member's wishes if a valid expression of wishes form is on file.

Without one, trustees must decide who should receive the death benefit — which may mean the spouse by default, but can result in delays and disputes.

Expression of wishes should be updated after every major life event: marriage, divorce, birth of a child, death of a named person.

Even if all the pension funds are discretionary and therefore outside the estate, IHT409 requires you to list every pension arrangement the deceased had, confirm who the scheme administrator is, state whether any death benefits were in payment (annuities), and confirm the position on each scheme.

HMRC uses this to verify that nothing has slipped into the estate.

If the deceased was already receiving a pension and it had a guaranteed payment period (e.g. 5 or 10 years from commencement), the remaining guaranteed payments form part of the estate.

HMRC calculates the value as the capitalised value of the remaining guaranteed payments.

This applies to most defined benefit scheme pensions in payment with a guarantee.

Once a member converts their pension pot to an annuity (an irrevocable purchase), the annuity contract may include guaranteed minimum payment periods.

These guaranteed future payments are an estate asset.

If the annuity has no death benefits or guarantee, the payments simply stop on death and there is nothing to include.

If the member had taken their tax-free cash lump sum from the pension and was waiting for the funds to clear into their bank account at the date of death, those funds may be an estate asset (depending on timing).

Similarly, if the member had exercised a right to a specific lump sum payment that was pending at death, the right to receive it may be an estate asset.

Alternatively secured pensions (ASPs) were a type of pension drawdown that existed before 2011.

If the deceased was drawing income from an ASP at death, the residual fund was potentially subject to IHT (at a punitive rate of up to 70%).

This was abolished for deaths after April 2011 and replaced by flexi-access drawdown, but is still relevant if the deceased was drawing from an ASP established before 2011.

Usually expressed as a multiple of pensionable salary (e.g. 3× salary). Paid at the trustees' discretion.

Provided the scheme rules give the trustees genuine discretion (not just a token discretion), the lump sum is outside the estate.

Obtain a letter from the scheme administrator confirming this — HMRC may ask to see it.

If the deceased had already retired and was receiving a pension, check the scheme rules for guarantee periods.

If the pension was in its guarantee period, the remaining guaranteed payments need to be valued and included.

Contact the scheme administrator — they are required to provide the valuation.

Write to the scheme administrator requesting: confirmation that death benefits are held in a discretionary trust; the value of any death benefit lump sum; whether any pension was in payment and details of any guarantee period; the name of the trustees.

Request this in writing — you may need to produce it to HMRC.

If the member died before accessing their pension at all, the full fund is typically at the trustees' discretion and outside the estate.

The pension provider will pay the fund (or purchase an annuity) for the nominated beneficiaries.

The value does not need to be included in the estate for IHT — but must be declared on IHT409.

Flexi-access drawdown allows the member to take income as needed.

The residual drawdown fund is paid at the trustees' discretion on death and is therefore outside the estate.

The value of the drawdown fund at date of death must be declared on IHT409 (even though it is not an estate asset) so HMRC can verify the tax treatment.

Many people have several pension pots — a workplace pension from each previous employer, one or more personal pensions, and possibly a SIPP.

List them all on IHT409.

Each provider needs to be contacted separately for a death benefits statement. This takes time — start the process early.

Under legislation in Finance Act 2024, from 6 April 2027 the value of unused pension funds (funds the member had not yet drawn from) will be included in the deceased's estate for IHT.

The pension scheme administrator will be responsible for reporting the value to HMRC and potentially paying IHT to HMRC directly before releasing the balance to beneficiaries.

The discretionary trust exemption that currently removes most pension funds from IHT will no longer apply to the undrawn fund.

Pensions have been used as IHT-efficient vehicles for the last 10 years precisely because undrawn funds were outside the estate.

After April 2027, the IHT advantages of leaving money in a pension rather than drawing it down are significantly reduced.

Families should review pension nomination forms and consider whether drawdown strategy needs to change.

Estates where pensions account for a large part of total wealth may see their IHT position worsen substantially.

If the death occurred before 6 April 2027, the current rules apply — pension funds held in discretionary trust are outside the estate.

IHT409 should be completed under the rules that applied at the date of death.

The April 2027 change does not apply retrospectively.