The New Rule That Could Freeze Half Your Inherited Pension for 15 Months

Why might I only receive half of the pension I've inherited?

1From April 2027, where the personal representatives direct a scheme to pay the inheritance tax from the pension, a beneficiary can access only 50% of the death benefits for up to 15 months
2The scheme does not decide this on its own — the direction comes from the personal representatives, who are the people liable for reporting and paying the tax
3The other 50% is released in the normal way; the 50% is a flat mechanism, not a calculation of the taxable portion
4It only applies where inheritance tax is expected on the pension, so most estates are unaffected
5If you're waiting for an inherited pension and it seems frozen, this rule may be why

From April 2027, where the personal representatives of an estate direct a pension scheme to pay the inheritance tax attributable to the pension, a beneficiary can access only half of the death benefits for up to 15 months. This is not a mistake or an error by the pension company — it is a legal mechanism introduced alongside the rule bringing unused pension funds into the inheritance tax net. If you are expecting pension death benefits and the amount seems lower than you expected, here is what is happening.

Why this is happening

Before April 2027, pension death benefits were generally paid directly to nominated beneficiaries without any involvement from the estate or HMRC. From April 2027, unused pension funds count as part of the taxable estate for inheritance tax purposes.

The people liable for reporting and paying that tax are the personal representatives of the estate — the executors — not the pension scheme. Beneficiaries are jointly liable for the tax attributable to the benefits they receive. The original October 2024 proposal would have put the duty on scheme administrators; the government reversed that on 21 July 2025 after consultation.

This creates a practical problem: benefits paid out in full before the tax position is known are hard to recover. The mechanism built into the legislation lets the personal representatives direct the scheme to pay the tax from the pension, or to reimburse them for tax they have already paid, and limits what the beneficiary can draw in the meantime.

How the withholding works in practice

Where the personal representatives make a direction, the beneficiary can access:

50% of the pension death benefits
For up to 15 months from the date of death
Until the tax attributable to the pension has been settled

During this period the personal representatives must report the estate, including the pension fund value and the tax attributable to each scheme, and arrange payment of the tax.

The 15 months is a maximum, not a fixed period — once the tax attributable to the pension is settled, the rest of the benefits are released.

Stage	What happens	Who does it
Death notified to pension scheme	Scheme confirms the fund value at the date of death	Personal representatives
Estate reported	Personal representatives report the estate including the pension and the tax attributable to each scheme	Personal representatives
Direction made, tax paid	Personal representatives may direct the scheme to pay the tax from the pension; beneficiary access limited to 50% meanwhile	Personal representatives / scheme
Tax settled	Remaining death benefits released to beneficiaries	Pension scheme

Who is affected by this rule?

This only applies where inheritance tax is expected on the pension funds. Where the estate's total value including the pension falls within the available nil-rate bands, no tax is due and no direction arises. A pension passing to a surviving spouse or civil partner, or to charity, is exempt, so the same applies there.

The nil-rate band is £325,000 per person (or up to £500,000 with the residence nil-rate band, and up to £1 million for a surviving spouse using both bands). If the total estate including the pension is below this threshold, no IHT is owed and the pension should be paid out in full in the normal way.

Death in service benefits from a registered pension scheme, and dependants' scheme pensions from a defined benefit or collective money purchase arrangement, are excluded from the change altogether. The changes mainly bite on defined contribution pensions (personal pensions, SIPPs, workplace schemes with remaining funds).

What affects how long it takes

The 15 months runs from the date of death, not from the date the scheme is notified, so the period is not extended by a late notification. What determines when the balance is released is when the tax attributable to the pension is settled, which depends on:

When the scheme is notified of the death and confirms the fund value at that date, which the personal representatives need before they can report the estate.
When the estate is reported and the tax paid. The personal representatives are the people liable, and the balance follows once the tax attributable to the pension is settled.
Whether a direction was made at all. If no inheritance tax is expected on the pension, the 50% limit does not apply.

For a broader guide to what executors need to do around pension IHT from April 2027, see our guide on pensions and inheritance tax 2027.

If you need money urgently

If the withholding of pension death benefits is causing genuine financial hardship, there are some options:

Contact the pension scheme directly and explain your circumstances. Schemes have their own discretion over how death benefits are paid, and the 50% limit applies only while a direction is in force.
Speak to the personal representatives about other estate assets. Bank accounts, ISAs and other assets are not subject to this limit and may be accessible sooner, subject to the usual probate requirements.
Consider whether a bereavement support payment or other benefit may be available in the interim — see our guide on bereavement support payments.