The Government has published draft legislation outlining the details behind the significant reforms to unused pension funds and death benefits that were announced at the Autumn Budget 2024.
The reforms are due to take effect from 6 April 2027 and will affect many individuals where pension funds have been used as part of an estate planning strategy due to previously being outside the scope of inheritance tax.
At Dains, our specialist teams are already working with clients and their financial advisers to assess the implications and identify opportunities to protect wealth.
Key points:
The value of most UK (and some offshore) unused pension funds and death benefits will now be included in an individual’s estate for inheritance tax purposes.
Inheritance tax due on unused pension funds and death benefits may be paid directly from the pension fund, subject to appropriate arrangements being made.
Death in service benefits will continue to be excluded from inheritance tax.
What you need to know:
Pension-held assets that would otherwise qualify for agricultural property relief or business property relief will not receive these reliefs.
Unused pension funds and death benefits will count towards the residential nil-rate band tapering provisions for larger estates.
Pension scheme administrators will not automatically be responsible for payment of inheritance tax and instead the payment must be specifically requested.
How we can help:
These reforms mean pension funds will no longer provide an inheritance tax shelter, and planning will be essential to minimise the impact of the changes.
Collaborative working between financial advisers and private client tax advisers will be key.
If you would like to discuss how these reforms may affect you and your family, please get in touch with our private client tax team.
Contact: