The Institute of Chartered Accountants in England and Wales (ICAEW) has expressed concerns regarding the proposed reforms on inheritance tax on pensions, urging an urgent reassessment of the draft legislation.  

The UK government’s plan to include unused pension funds and pension death benefits within a member’s estate for inheritance tax purposes has been labelled “unworkable” by the Institute, especially in cases where pension and estate beneficiaries differ. 

Planned for the Finance Bill 2025-26, the legislation intends to tax the value of the unused funds within the estate of the deceased, even when pension scheme administrators or trustees have discretion over death benefits, albeit with some exclusions. 

Exemptions from Inheritance Tax will continue for death in service benefits from registered pension schemes and for benefits passed to a surviving spouse, civil partner, or registered charities. 

The ICAEW has highlighted that the proposed tax changes are unfeasible in instances where pension and estate beneficiaries are not aligned.  

ICAEW technical manager Katherine Ford said: “Under the proposed draft legislation, personal representatives will have to pay inheritance tax on pensions funds they do not control and will struggle to enforce the right of recovery from pension beneficiaries.”  

This could lead to estate beneficiaries unfairly bearing the tax burden, which should be proportionally shared with pension beneficiaries. 

They have also raised concerns about the potential reluctance of individuals to serve as personal representatives due to the risk of personal liability.  

Furthermore, the ICAEW has criticised the lack of adequate representation for personal representatives in the consultation process, suggesting that their perspectives have not been sufficiently considered compared to those from the pension industry.  

Ford added: “The estate beneficiaries will be worse off if they must bear tax that should be borne proportionately by the pension beneficiaries. Due to the risk of personal liability, few professional or lay people will want to act as personal representatives, which means the reforms as they stand will be unworkable.   

“The fair and equitable solution is to have a withholding of inheritance tax on unused pension funds, to balance the interests of both estate beneficiaries and pension beneficiaries.”   

Earlier in September 2025, the ICAEW appointed Helen Poole as the new chair of the Audit Registration Committee, with her term set to commence in October this year.