Can the inheritance tax bill on my estate be paid out of my pension direct to HMRC? STEVE WEBB replies

As a divorced person I accept that my estate will be subject to inheritance tax.I have been unable to gain any clarity on how much of the inheritance tax bill can be paid by the pension.Having researched this online, I have received three conflicting answers which is very confusing.The first said the pension can pay it all if it is large enough. The second said the pension payment is restricted to a maximum of 50 per cent of the pension.The last one stipulated that the pension can only pay a percentage of the inheritance tax bill that equates to the percentage that the pension comprises of the estate.Steve Webb replies: I can well understand your confusion about the new regime for collecting inheritance tax (IHT) on certain pensions from April 2027.We are still awaiting consumer-friendly guidance from HMRC which may only appear shortly before the new system goes live.And the practicalities of how the new system will work have been altered since the policy was first announced, so it's not surprising that you are not clear.To recap briefly on the policy, when someone dies from April 6 2027 onwards, 'unspent' pension wealth will form part of their estate for IHT purposes.This will mostly capture 'pot of money' or 'defined contribution' pensions where it is simply the balance of the fund at the time of death which will be counted.But certain other types of payments such as some lump sum death benefits from traditional salary-related pension schemes will also count.It is for this reason that the person winding up the estate – the executor or administrator, known by HMRC as the 'personal representative' – will have to contact *all* of the pension schemes of which the deceased was a member before they can work out how much IHT (if any) will be due on the estate.One challenge facing the personal representative is that although they are liable for making sure the IHT is paid (along with any beneficiaries, once identified), they may not be the only person inheriting from the estate – indeed, they may not inherit anything.One risk was that pension schemes would pay the full balance of pension funds (to the person(s) nominated by the deceased) before the IHT had been worked out.This could make it much harder for the personal representative to make sure that IHT was actually paid in respect of such pensions.To help deal with this, a personal representative will in future be able to require any pension provider to withhold up to 50 per cent of the value of the payout until the IHT position is resolved.This is where you came across the 50 per cent figure when you researched online.The reason that the maximum figure is 50 per cent rather than the 40 per cent IHT rate is because schemes may also be asked to pay their share of any interest due on the IHT payment.Note that personal representatives are only meant to issue these notices if they have reason to think that IHT might be due, and shouldn't simply do this 'just to be on the safe side'.These withholding notices do not apply where the beneficiary is a spouse or civil partner where no IHT would be due in any case.The actual amount of IHT due on each pension will depend on things like the total size of the estate and whether the beneficiary is a spouse or civil partner (and hence exempt).Once all the information on the estate has been gathered, the personal representative will enter this into an HMRC calculator.This will work out if any IHT is due and, if so, the amount of IHT due on each of the pensions as well as on the rest of the estate covered by the will.The personal representative then notifies each pension provider individually of 'their share' of the IHT bill.Provided the share is at least £1,000, the personal representative can require the pension provider to make that payment directly to HMRC through what is called a 'Payment Notice'.This is where you came across the idea of each scheme paying its 'share' of the bill.Once that liability has been satisfied, the pension scheme is free to pay out the balance of any monies due.You can read more about how all of this will work in HMRC's two technical notes:Technical note: Inheritance Tax on pensions;Technical note 2: Further information on Inheritance Tax and Pensions.The sections on 'apportionment', 'withholding' of pensions until IHT has been settled and the 'pensions direct payment scheme' are the ones most relevant to your particular question. Ask Steve Webb a pension question Former Pensions Minister Steve Webb is This Is Money's Agony Uncle.He is ready to answer your questions, whether you are still saving, in the process of stopping work, or juggling your finances in retirement.Steve left the Department of Work and Pensions after the May 2015 election. He is now a partner at actuary and consulting firm Lane Clark & Peacock.If you would like to ask Steve a question about pensions, please email him at pensionquestions@thisismoney.co.uk.Steve will do his best to reply to your message in a forthcoming column, but he won't be able to answer everyone or correspond privately with readers. Nothing in his replies constitutes regulated financial advice. Published questions are sometimes edited for brevity or other reasons.Please include a daytime contact number with your message - this will be kept confidential and not used for marketing purposes.If Steve is unable to answer your question, you can also contact MoneyHelper, a Government-backed organisation which gives free assistance on pensions to the public. It can be found here and its number is 0800 011 3797.Steve receives many questions about state pension forecasts and COPE - the Contracted Out Pension Equivalent. If you are writing to Steve on this topic, he responds to a typical reader question here. It includes links to Steve's several earlier columns about state pension forecasts and contracting out, which might be helpful. SIPPS: INVEST TO BUILD YOUR PENSIONAJ BellAJ Bell0.25% account fee. 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