Understanding the proposed Impact of Inheritance Tax Reforms on Pensions

‍

In the wake of the UK Labour Party's October 2024 budget, a consultation has been started to review proposed changes  to the Inheritance Tax (IHT) regulations concerning pensions passed down to beneficiaries with effect from April 2027, particularly those who are not spouses. This effectively proposes to treat your pension fund as part of your estate. As a firm of accountants committed to keeping our clients informed and prepared, we aim to clarify these changes and their implications.

‍

Key proposed changes to IHT on Pensions:

1. Introduction of an Inheritance Tax charge on un used pension funds and death benefits

Previously pensions have been  exempt from IHT. The new regulations suggest that they no longer will be exempt and any un used pensions funds in death will be subject to IHT.

2. Extended Reporting Requirements:

To enhance transparency and compliance, the reporting requirements for IHT on pensions have been extended. Executors and beneficiaries are now required to provide more detailed documentation and declarations regarding the distribution of pension funds. This measure is designed to ensure that all taxable amounts are accurately reported and taxed accordingly.

‍

Implications for Pension Holders

It's crucial to reassess estate planning strategies in light of these changes. Consulting with an accountant , financial adviser or pension provider can provide insights into optimising pension distributions to minimise tax liabilities.

Understanding the new tax obligations is essential to mitigate unexpected tax bills. Beneficiaries should ensure they have access to the necessary documentation and seek professional advice if needed.

One of the things to bear in mind is that some pension schemes own assets that could potentially be eligible for Business Property Relief if the asset was owned by a business. We would hope that the consultation considers this and potentially provides some exemptions and reliefs for some assets held within pension schemes.

‍

Conclusion:

The October 2024 budget's proposed changes to IHT on pensions represent a significant shift in how pension assets are treated upon inheritance although we would expect more details to be released and confirmed following the consultation.

Our firm remains dedicated to guiding our clients through these changes with expert advice and personalised approaches. Should you have any questions or require assistance in navigating these new regulations, please do not hesitate to contact us. We are here to help you secure your financial future and that of your beneficiaries.

‍