The Autumn Budget in 2024 introduced significant changes to inheritance tax, including the future tax treatment of pensions. At the moment, unused pension funds aren\u2019t usually counted as part of an estate for inheritance tax.<\/p>\n\n\n\n
From 6 April 2027, most unused pension funds and death benefits may be subject to inheritance tax, meaning that pension assets over \u00a3325,000 (the current nil-rate band) could be taxed at the rate of 40%.<\/p>\n\n\n\n
Extra allowances or exemptions may be available, including the residence nil-rate band. If the pension is left to a spouse or civil partner, it won\u2019t be subject to inheritance tax when the first person dies. This is because spousal exemption still applies; this remains the same.<\/p>\n\n\n\n
Probate and the role of Pension Scheme Administrators<\/strong><\/p>\n\n\n\n From April 2027, pension scheme administrators will take on a new role: they\u2019ll be responsible for reporting and paying inheritance tax on unused pension funds and death benefits.<\/p>\n\n\n\n The personal representatives of the estate currently have this role, but only for certain types of pension schemes that are part of the estate\u2019s value.<\/p>\n\n\n\n To report the tax correctly, pension scheme administrators will need to know how much of the deceased\u2019s inheritance tax-free allowance (nil-rate band) applies to their unused pension funds. Personal representatives will have to work this out and give this information to the pension scheme administrators.<\/p>\n\n\n\n These changes may cause delays in paying inheritance tax (which is due within six months of death) and in passing on pension funds and other estate assets to beneficiaries.<\/p>\n\n\n\n That\u2019s why it\u2019s important to plan ahead and be ready for these new rules to avoid extra delays and complications.<\/p>\n\n\n\n The impact of the changes – estate planning<\/strong><\/p>\n\n\n\n Previously, pensions were considered a \u2018safe space\u2019 as they were outside the scope of inheritance tax. In light of the new rules, you may need to reconsider how you plan your estate to help reduce your inheritance tax liabilities.<\/p>\n\n\n\n Lifetime gifting<\/strong><\/p>\n\n\n\n It is important to balance the benefits of gifting with ensuring adequate resources for retirement. Lifetime gifting may include the following:<\/p>\n\n\n\n Life insurance<\/strong><\/p>\n\n\n\n Review and update pension nominations<\/strong><\/p>\n\n\n\n Pension drawdown strategies<\/strong><\/p>\n\n\n\n The Autumn Budget 2024\u2019s reforms are making significant changes to the tax treatment of pensions. Given the complexity of the changes, working closely with professional advisors who specialise in estate planning is key to optimising inheritance tax planning and protecting wealth for future generations. Look for someone who is STEP qualified as this means they specialise in this particular area.<\/p>\n\n\n\n Nina Sperring TEP<\/a>, Partner, Price Slater Gawne Solicitors<\/strong><\/em><\/p>\n\n
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