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, pension providers can legally withhold up to 50% of pension death benefits for up to 15 months
2This is to ensure inheritance tax on the pension is paid before the full amount is released
3The other 50% should be released promptly — only the portion potentially subject to IHT is held back
4This only applies to estates affected by the new pension IHT rules (larger estates)
5If you're waiting for an inherited pension and it seems frozen, this rule may be why

From April 2027, a new rule allows pension providers to hold back up to half of an inherited pension 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 new rule bringing unused pension funds into the inheritance tax net. If you are expecting to receive pension death benefits and the amount seems lower than you expected, here is what is happening and what you can do.

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.

This creates a practical problem: the pension provider cannot simply pay out the full pension death benefits without knowing whether IHT is owed on the pension — because if it overpays and IHT is later found to be due, recovering the money from beneficiaries would be very difficult.

The solution built into the legislation is a withholding mechanism: pension providers are permitted to hold back a portion of the death benefits while the executor and HMRC work out the IHT position.

How the withholding works in practice

The rules allow pension providers to withhold:

Up to 50% of the pension death benefits
For up to 15 months from the date of death
Until the IHT attributable to the pension has been calculated and paid

During this period, the executor must file the IHT return (IHT400) including the pension fund value, arrange payment of any IHT owed, and coordinate with the pension provider and HMRC.

Once HMRC confirms that the IHT has been settled (or that no IHT is owed on the pension), the pension provider must release the withheld funds. The 15 months is a maximum — if the IHT is resolved sooner, the funds should be released sooner.

Stage	What happens	Who does it
Death notified to pension provider	Provider freezes up to 50% of death benefits pending IHT calculation	Executor
IHT return filed	Executor files IHT400 including pension fund value; HMRC calculates IHT owed	Executor / solicitor
IHT paid	IHT attributable to pension paid (from estate or pension funds)	Executor / pension provider
HMRC confirms settlement	HMRC issues clearance; pension provider releases withheld funds to beneficiaries	HMRC / pension provider

Who is affected by this rule?

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The withholding rule only applies where the estate is large enough for IHT to be owed on the pension funds. Smaller estates — those where the total value (including the pension) falls within the available nil-rate bands — should not be subject to withholding.

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.

Defined benefit (final salary) pensions are largely unaffected — the changes mainly apply to defined contribution pensions (personal pensions, SIPPs, workplace pension schemes with remaining funds).

What you can do to speed up the process

The key to minimising the time that pension death benefits are withheld is to act promptly:

Notify the pension provider as soon as possible after the death. The 15-month maximum starts from the date of death, not from when you notify the provider — so delay costs time.
Instruct the executor (or a solicitor) to file the IHT return as quickly as possible. The faster the IHT400 is filed and any IHT paid, the faster HMRC can issue clearance and the provider can release the withheld funds.
Work with the executor and pension provider together. Communication between the three parties — you, the executor, and the pension provider — is essential. Make sure each knows what the others are doing.

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 provider directly and explain your circumstances. The legislation does not prevent providers from exercising discretion in cases of hardship — they may be able to release more than the minimum 50% in urgent situations.
Speak to the executor about other estate assets. Bank accounts, ISAs, and other assets are not subject to the withholding rule and may be accessible sooner (subject to probate requirements).
Consider whether a bereavement support payment or other benefit may be available in the interim — see our guide on bereavement support payments.

Waiting for an inherited pension is stressful. Farra helps you stay on top of every step — and know what to chase and when — get started here.