Government confirms pension funds will incur IHT

Sacker & Partners LLP, a leading law firm specialising in pensions and retirement savings, has reacted to the UK Government's recent confirmation that unused pension funds will attract inheritance tax (IHT) starting from 6 April 2027. The announcement came with the release of draft Finance Bill clauses aimed at implementing these changes.

Claire Carey, partner at the firm, elaborated on the implications of this decision, stating “On the cusp of the summer recess, the Government has confirmed that it is pressing ahead with plans to bring unused pensions in scope of IHT. From an individual perspective, it is worth bearing in mind that existing exemptions and nil rate bands will mean that the majority of estates will not, ultimately, be subject to IHT. However, at a time of increasing regulatory burden, the new measures will impose additional obligations on pension schemes, not least by increasing information flows between them and personal representatives.”

Carey also noted that there is some positive news included in this update. “Originally, there was uncertainty around whether death in service benefits payable from a registered pension scheme would be caught. Designed to compensate for the loss of an individual’s income at an incredibly difficult time, no doubt to the industry’s collective relief, the Government has now confirmed that they will be excluded from its IHT proposals, alongside dependants’ scheme pensions from DB or collective money purchase arrangements.”

As the implementation date approaches, affected individuals and pension schemes are advised to prepare for the regulatory changes that will follow this significant shift in taxation policy.