The autumn budget 2024
One of the key announcements of the topical Autumn 2024 Budget was that unused pension funds and lump sum death benefits payable from registered pension schemes will now fall within an individual’s estate and will be potentially liable to Inheritance Tax (IHT) from 6 April 2027.
The current position and the proposal
The current position is that neither unused pension funds at one’s death nor lump sum benefits that are payable from discretionary trusts are included within one’s estate for IHT purposes. The proposed change to the present position may lead to potential IHT liability arising, although it is still subject to the currently prevailing IHT thresholds and exemptions like death benefits passing on to a surviving spouse or civil partner.
Death in service benefits
The legislation ushering in these changes is in the Finance Act 2026. One key change is that all death in service benefits paid from registered pension schemes, regardless of whether they are discretionary or not will not fall into the scope of IHT. These are tax-free lump sums provided by employees to beneficiaries of their employee who dies while still employed by their company. This necessitates thorough estate planning for employees and their employers alike especially those offering death in service benefits, who may also want to ensure they are offering sufficient awareness to their employees.
The duty of personal representatives
Once this comes into law, personal representatives and not scheme administrators as initially proposed, will be responsible for reporting and paying the IHT due on unused pension funds and lump sum death benefits.
How can we help you?
The inclusion of pensions to the scope of IHT is critical to estate administration. At Bhakar Greenfield G LLP we offer estate administration as a service to personal representatives and their beneficiaries. As part of our estate administration service, we are there to advise our clients on the law and legislative changes around pensions and IHT. We will also assist personal representatives by locating the pensions that may not be known to the personal representative, liaising with the scheme administrators to establish the value of the benefits due, reporting to HMRC so that IHT is calculated properly and facilitating payment of the IHT from estate funds or otherwise.
Please contact us for more information on the changes to the law around pensions and IHT.
