| By Q3, the government is expected to provide implementation guidance on how pensions and death benefits will be treated | Any changes are likely to have the greatest impact on people with established estate plans | As proposals are not finalised, it’s wise to consider potential implications but await the final guidance before overhauling plans |
Chancellor Rachel Reeves announced plans to include unused pension funds and death benefits within the value of estates for IHT purposes, during the Autumn Budget 2024. Under the proposals, pension administrators will report and pay IHT directly to HMRC.
Death-in-service benefits paid out by employers have traditionally been separate from personal pensions for the purposes of calculating an IHT bill. By including unused pensions and death-in-service benefits in IHT calculations, more estates could face higher taxes.
This announcement came as a surprise, particularly to those who have worked hard to build a pension as a tax-efficient way to pass wealth on to loved ones. Any changes are likely to have the greatest impact on people with established estate plans.
Timeline
A 12-week technical consultation on the proposed changes concluded on 22 January. Once the feedback has been reviewed, government consultation principles outline that responses should be published within 12 weeks. By the third quarter of the year, the government is expected to provide specific implementation guidance on how pensions and death benefits will be treated under the new regime. Any changes won’t take effect until 6 April 2027.
As proposals are not finalised, it’s wise to consider potential implications but await the final guidance before overhauling plans. This still gives us ample time to make changes before implementation in 2027.
A review of existing pension arrangements would be useful so we can think about how the proposed changes could affect what your beneficiaries would receive.
Time and knowledge
Rest assured we are monitoring developments and will keep you in touch as we know more. When we have more certainty, we may suggest you consider alternative options that ensure your estate remains as tax efficient as possible and aligned with your goals. Together, we’ll help you secure your family’s future with confidence.
The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. The Financial Conduct Authority (FCA) does not regulate Will writing, tax and trust advice and certain forms of estate planning.