From 6 April 2027, when a pension scheme member dies with unused funds or without having accessed all of their pension entitlements, those unused funds and death benefits will be treated as being part of that person’s estate and may be liable to Inheritance Tax. The current distinction in treatment between discretionary and non-discretionary schemes will be removed.
The change will apply to both DC and DB schemes. It will apply equally to UK registered schemes and QNUPS. This will ensure that most pension benefits are treated consistently for Inheritance Tax purposes, regardless of whether the scheme is discretionary or non-discretionary, DC or DB.
A small number of specified pension benefits will remain outside scope for Inheritance Tax, including where funds can only be used to provide a dependants’ scheme pension. These are currently out of scope in non-discretionary schemes and so will remain out of scope under this change.
Pension scheme administrators will become liable for reporting and paying any Inheritance Tax due on pensions to HMRC. This will require pension scheme administrators and personal representatives to share information with one another.
A technical consultation has been issued on the processes required to implement these changes for UK-registered pension schemes. After the consultation, the government will publish a response document and carry out a technical consultation on draft legislation for these changes in 2025.
The government will continue to incentivise pension savings for their intended purpose of funding retirement, supported by ongoing tax reliefs on both contributions into pensions and on the growth of funds held within a pension scheme.
If you would like to discuss further how the announcements may affect your personal finances, please get in touch with a member of our team.
