STEP welcomes amendments to inheritance tax

Emily Deane TEP, Technical Counsel and Head of Government Affairs at STEP, stated that ‘the amendments to the Finance Act 2026, announced in the Budget, address some of the concerns and practical difficulties that STEP has raised about the forthcoming IHT changes that bring most unused pension funds and pension death benefits within the value of an individual’s estate for IHT purposes.' She highlighted the significance of these changes by adding, ‘we welcome the positive step in the right direction, and recognition by government that amendments were needed. STEP will continue to engage constructively with the government to support practical solutions so that practitioners and the public have the clarity they need to make the most informed estate planning decisions.’

The announced amendments aim to enhance clarity for personal representatives and provide greater flexibility for charitable giving. The first amendment enables personal representatives, under certain conditions, to instruct pension scheme administrators to pay the IHT directly to HMRC. This improvement seeks to resolve cash-flow issues that may arise when personal representatives need to settle tax liabilities before obtaining probate while lacking access to pension funds. This change stands to benefit bereaved families significantly.

The second amendment introduces a new element concerning pension funds within the IHT charitable giving framework. This development allows estate administrators to determine whether pension property is included in the estate’s general component or treated separately when evaluating eligibility for the reduced IHT rate of 36%. By providing this flexibility, the amendment aims to ensure that the handling of pension funds does not adversely affect an estate’s qualification for the reduced IHT rate, enhancing personal representatives' ability to navigate the charitable giving thresholds more effectively.

A recent survey conducted by STEP revealed that 93% of practitioners believe clients are worried about the upcoming IHT changes affecting pensions, and 97% agree that these changes will complicate estate planning, with 83% indicating a significant increase in complexity. Additional information regarding IHT on pensions is expected in a forthcoming Technical Note, which the government intends to release later this year