Inheritance Tax and pensions: 3 warnings over illiquid assets before 2027
The shift in inheritance tax treatment for pensions from 6 April 2027 is more than a technical change. It raises a sharper question about what happens when a pension holds assets that cannot be quickly sold. Inheritance tax is now tied to a problem advisers have long understood: liquidity. If a pension contains commercial property, unquoted shares, or other hard-to-sell investments, the pressure on families and administrators could become immediate, not theoretical. That is why the current debate is not only about tax, but about timing, access, and the practical limits of settlement.
Why the inheritance tax change matters right now
The central issue is straightforward. Once pensions are pulled into inheritance tax from 6 April 2027, the administration of estates may become more complex, especially where the pension includes illiquid assets. A common example is commercial property held within a SIPP, but the concern is broader than that. Unquoted shares and assets that are not easily realisable can create the same strain. The problem is not simply the tax charge itself; it is the risk that assets cannot be turned into cash quickly enough to meet obligations tied to the estate.
That concern is heightened by the possibility of long waits. Fears over HMRC delays suggest that families may be left facing months-long delays at exactly the moment cash is needed. For advisers, that creates a practical challenge: a pension that looks valuable on paper may still be difficult to settle in real time. The inheritance tax rules therefore create a mismatch between asset value and usable liquidity, which is where the most acute pressure may arise.
Illiquid assets could turn a tax issue into an estate problem
The context around inheritance tax points to a wider inflection point for pensions. The challenge is not only that pensions are being brought into the tax net, but that the structure of the assets inside them may not be suited to that change. Illiquid holdings such as commercial property, unquoted shares, gated property funds, and similar long-term investments can be difficult to price, harder to sell, and slower to convert into distributable funds. That creates uncertainty for families who may need access to value quickly.
Andrew Tully’s warning focuses on the practical side of the policy shift. When a pension contains assets that are not easily realisable, the estate can face a delay between the legal obligation and the financial ability to meet it. Inheritance tax in that setting is not just a matter of calculation. It becomes a question of whether the underlying assets can support settlement without forcing distressed sales or prolonged administration.
Expert warning: the liquidity trap facing advisers
Andrew Tully, whose comments frame this issue, describes the change as a possible inflection point. His concern is rooted in the interaction between tax policy and asset structure. The more a pension holds investments that do not move quickly, the greater the risk that the family will struggle to deal with the inheritance tax outcome in a timely way. That is especially relevant where commercial property sits inside a SIPP, because property cannot always be sold when administrators need it most.
The broader message is that advisers will need to think beyond valuation. A pension can be substantial and still be awkward to administer if it contains the wrong mix of assets. Inheritance tax raises the stakes because it introduces a deadline. If HMRC processing is slow and the assets are illiquid, the problem compounds. In that sense, the policy change does not only affect tax planning; it changes the way advisers must assess resilience inside pension structures.
What this means for clients, families, and the market
The ripple effects extend beyond individual cases. Families may inherit assets that are valuable but difficult to use, while advisers may face more pressure to assess whether existing pension holdings are practical under the new regime. The mention of woodford funds and gated property funds in the context underscores how quickly an apparently diversified investment can become difficult to access when market conditions or structural limits interfere with liquidity. That lesson now carries added weight under inheritance tax.
There is also a broader behavioural effect. If more people are encouraged to hold long-term assets in pensions, the inheritance tax change may intensify the need to distinguish between pension wealth and pension flexibility. The headline value of a pension may no longer tell the full story. What matters is how quickly the assets inside it can be realised when settlement begins.
For now, the most pressing question is whether the system can handle the gap between tax liability and asset liquidity without leaving families trapped in the middle of the process. If inheritance tax is now part of the pension equation, will advisers be judged less by returns than by how well they prepare clients for the assets they may not be able to sell?
