Pensions now subject to Inheritance Tax – Autumn Budget 2024

Rachel Reeves has announced an interesting change to the way unused or un-accessed pensions are to be taxed from the 6 April 2027.

What happens now

Currently the value of most individuals’ undrawn pensions is not subject to Inheritance Tax on death. This has meant that for some building up their pension fund has been a good Inheritance Tax planning strategy.

Proposed changes

Under the proposed rules, from 6 April 2027, when a pension scheme member dies with unused funds or without having accessed all of their pension entitlements, those unused funds and death benefits will be treated as being part of that person’s estate and may be liable to Inheritance Tax. The changes will apply to both defined contribution and defined benefit schemes.

A small number of specified pension benefits will remain outside the scope of Inheritance Tax, including where funds can only be used to provide a dependant’s scheme pension. This is in-line with the current rules.

The mechanics of paying the Inheritance Tax seem to be relatively easy, as the pension scheme administrators (PSAs) will become liable for reporting and paying any Inheritance Tax due on unused pension funds and death benefits. This will require Personal Representatives (executors) of estates to share information with the PSAs to ensure the correct amount is paid over to HMRC in respect of the PSAs share of Inheritance Tax.

The use of pensions may still be a good way to save for yours and your family’s future depending on your circumstances. However, the Inheritance Tax benefits of holding value in your pension over owning other assets may diminish over time.

Watch our Autumn Budget 2024 question time webinar

Following the Autumn Budget 2024, our panel of experts examined the announcements made by The Chancellor, discussing what these changes mean for you. They also answered questions from our live audience. This webinar is now available to watch on demand here.

Alternatively, if you would like any further information or guidance on this topic, get in touch with your usual Kreston Reeves contact or contact us here.