Budget confirms major changes to pensions and inheritance tax

In last year’s Budget, the Chancellor announced plans to end the ability to leave a pension fund free of Inheritance Tax (IHT) on death. This change will take effect from 6 April 2027, and this week’s Budget confirmed that the timetable remains unchanged.

The distinction between discretionary and non-discretionary schemes will be removed. As a result, unused pension funds and death benefits paid into a person’s estate will become chargeable to IHT, effectively restoring the position before the 2015 pension reforms.

The Budget also outlined some practical measures:

• Personal representatives will be able to instruct pension scheme administrators to withhold 50% of taxable benefits for up to 15 months to cover IHT liabilities in certain circumstances.
• Once personal representatives have received HMRC clearance, they will be discharged from liability for IHT on pensions discovered later.

The detailed legislation is still awaited, so further clarification will follow.

Other pension-related measures

Separately, from April 2029, pension contributions made under salary sacrifice arrangements above £2,000 per year will attract National Insurance contributions for both employers and employees.

What should you do now?

These changes could significantly impact estate planning and IHT exposure, and understanding your potential IHT liability now will help you plan effectively.

• Speak to your financial adviser, or let us introduce you to one, to review your current pension arrangements and linked death benefits.
• Review your estate and consider whether changes to your pension arrangements and linked death benefits need to be reflected within your Will.

If you would like to talk to our Private Wealth team, we can discuss how these Budget changes may affect you and what steps you can take.