HM Revenue & Customs has confirmed that estate executors can instruct pension schemes to withhold up to 50 per cent of retirement benefits to cover inheritance tax bills. From April 2027, unused pension pots will become part of inherited estates, exposing them to 40 per cent IHT for estates exceeding the £325,000 nil-rate band.

Government projections suggest the changes will pull an additional 10,500 estates into the IHT net by 2027-28, while 38,500 will see their tax bills rise by an average of £34,000. The withholding power can be exercised for up to 15 months, with interest accruing to HMRC after six months.

Pension experts warn this creates a recipe for family conflict. Sir Steve Webb, former Liberal Democrat pensions minister, said beneficiaries will face longer waits for their full entitlement while IHT is calculated. Rachel Vahey at AJ Bell said estate disputes already cause family friction, and this will only exacerbate matters. David Denton at Quilter Cheviot called HMRC's suggestion the change won't affect many pensions a "real understatement".