IHT409 Worked Example: Reporting Pensions and Death Benefits (and the 2027 Rule Change)

On form IHT409 you only report the parts of a pension that actually count for Inheritance Tax: a continuing guaranteed payment goes in boxes 1–7 (value at box 7, carried to IHT400 box 56), a lump-sum / death benefit goes in boxes 8–16 (and is usually IHT-free if the trustees had discretion — you answer Yes at box 12), and contributions or transfers in the two years before death are disclosed in the later boxes. Most discretionary lump sums sit outside the estate today — but for deaths from 6 April 2027 most unused pension funds will be dragged into IHT.

Pensions trip up more probate applications than almost any other asset, because the instinct is wrong: people assume a six-figure pension pot must be taxed, and that a modest monthly annuity must be ignored. IHT409 usually does the opposite. Below is a full box-by-box walk-through built around one realistic person, with exact figures, so you can see precisely what to write and what carries across to the IHT400. Everything here reflects the rules for deaths before 6 April 2027; the looming change is covered in its own section.

When you need IHT409 at all

You fill in IHT409 if the deceased received, or had made provision for, a pension or benefit from an employer or under a personal pension policy — anything other than the State Pension (GOV.UK: Inheritance Tax pensions (IHT409)). If they had more than one pension that falls into the same section of the form, HMRC asks you to complete a separate IHT409 for each.

You can answer No to the opening question (continuing payments) if the only payments after death were small arrears from the final monthly pension payment, a reduced survivor's pension, or payments made simply because the provider had not yet been told of the death. Those do not need the continuing-payments section — small arrears go straight into IHT400 box 56.

The three things IHT409 is really asking

The form looks long, but it is built around four short blocks. The first three are what most estates touch:

Box numbering note: HMRC refreshed IHT409 in September 2022 (replacing "lump sum" with "death benefit" and removing the old alternatively-secured-pension questions 25–42) and again in September 2023 (box 21 now points you to the IHT400 transfer page). The block structure above is unchanged; always work from the current PDF on GOV.UK and read the matching IHT400 Notes alongside it.

Why discretionary lump sums fall outside the estate (today)

The reason has nothing to do with the size of the pot and everything to do with who decides who gets it. Where the scheme trustees or administrators have discretion over who receives a death benefit, the deceased had no enforceable right to direct the money, so it does not form part of their estate and is not charged to IHT on death. That is exactly what box 12 on IHT409 is testing. If the deceased could have signed a binding nomination compelling the trustees to pay a named person (box 11), or the lump sum had to be paid to the personal representatives because there was no one else to receive it (box 9), the discretion is lost and the money can fall into the estate — which is why box 15 then feeds IHT400 box 56.

This long-standing treatment is precisely what the Government is changing.

The big change: pensions into IHT from 6 April 2027

For pension-scheme member deaths on or after 6 April 2027, most unused pension funds and pension death benefits will be brought within the value of the estate for Inheritance Tax — regardless of whether the scheme had discretion over payments (GOV.UK: Inheritance Tax on unused pension funds and death benefits). The headline points HMRC has confirmed:

• Who pays: personal representatives, not scheme administrators, become liable to report and pay any IHT due on unused pension funds and death benefits.
• What is excluded: death-in-service benefits from a registered pension scheme, and dependants' scheme pensions from a defined-benefit or collective-money-purchase arrangement, remain outside IHT.
• Exemptions still apply: funds passing to a surviving spouse or civil partner, or to a registered charity, keep their existing exemptions.
• A payment mechanism: personal representatives will be able to direct a scheme to withhold benefits (up to 50% for up to 15 months from death) or pay the IHT directly to HMRC before releasing the balance.

Re-run Margaret's example as if she died after 6 April 2027: her £180,000 SIPP would now be inside her estate. Her £120,000 death-in-service lump sum would still be excluded. So instead of nil, roughly £180,000 of pension would be added to the estate total — potentially taxed at 40% above the available nil-rate band (GOV.UK: How Inheritance Tax works). HMRC has said updated forms and guidance for the new regime will be published ahead of April 2027, so the IHT409 you complete for a 2027+ death will differ from the one described here.

Contributions and transfers in the two years before death

IHT409 asks whether the deceased or their employer made pension contributions within the two years before death (who, when, how much), and separately whether the deceased transferred, disposed of or changed any pension benefits in that window. For someone in normal health, a transfer or contribution usually carries only a nominal IHT value — they would reasonably have expected to live to enjoy the benefits themselves. The position changes sharply if they were in ill health at the time: a transfer or a big contribution made when death was foreseeable can be treated as a transfer of value and brought into the IHT calculation. HMRC describes this two-year focus in its internal guidance on examining IHT409 (IHTM17012). If you answer Yes to a transfer or change, the form directs you to write up the details on the relevant page of the IHT400.

Valuing continuing payments and value-protection lump sums

Guaranteed annuity continuing payments

When an annuity has a guarantee period that runs past the date of death, what passes is the right to receive the remaining guaranteed instalments. You record the payment frequency and amount (box 4), the date of the final guaranteed payment (box 5), any increase due between death and that final payment (box 6), and the value of the right to receive the remainder (box 7). That value is the present value of the future stream, not simply instalments multiplied out, and box 7 is the figure that goes to IHT400 box 56.

Value-protection lump sums

A value-protection (or "capital protection") feature returns the balance of the pot, less income already paid, as a lump sum on death. That sits in the lump sum / death benefit section. If it is payable at the trustees' discretion, it is treated like any other discretionary death benefit (box 12 = Yes → not in the estate pre-2027). If it must be paid to the estate or to a binding nominee, the box 15 amount is carried into IHT400 box 56.

How the IHT409 figures carry into the IHT400 total

IHT409 is a supplementary schedule — it never produces its own tax bill. It funnels figures into the main IHT400 account:

• Continuing payments (box 7) → IHT400 box 56.
• Non-discretionary lump sum (box 15) → IHT400 box 56 (omit it if box 12 = Yes).
• Transfers / changes in the last 2 years → written up on the IHT400 transfer page so HMRC can assess any transfer of value.

If, like Margaret, the only chargeable item is a modest continuing-annuity value and the big lump sums are discretionary, the schedule still gets submitted — it is the document that proves to HMRC you considered the pension and concluded little or nothing is taxable. Submitting a clean, well-evidenced IHT409 is often what stops a pension enquiry before it starts.