The Government has confirmed plans to bring most unused pension funds and death benefits within the scope of Inheritance Tax (IHT) from 6 April 2027.
The plans were originally announced at the Autumn Budget 2024. This was followed by a technical consultation, ‘Inheritance Tax on pensions: liability, reporting and payment’, seeking views on the processes required to implement the changes. The Government has now published its response to the consultation.
Many responses supported bringing pension wealth within the scope of IHT. However, there was strong opposition to making pension scheme administrators liable for reporting and paying any IHT due on the pension component of an estate. The Government has therefore decided not to proceed with this proposal. Instead, the deceased’s personal representatives will be liable for reporting and paying IHT on any unused pension funds and death benefits.
Death in service benefits paid from non-discretionary pension schemes or trusts are currently subject to IHT. Following the technical consultation, the Government has decided that all death in service benefits payable from registered pension schemes will be outside the scope of IHT, meaning that there will be consistent treatment of death in service benefits between discretionary and non-discretionary schemes.
The Government estimates that, out of around 213,000 estates with inheritable pension wealth in 2027 to 2028, around 38,500 estates will pay more IHT as a result of the changes and 10,500 estates will become liable for IHT where this would not previously have been the case.
The Government has also published draft legislation to implement the changes.