AUTUMN BUDGET 2024 – Inheritance Tax - Pensions

Changes to Pensions

From 6 April 2027, most unused pension funds and death benefits will be aggregated with the value of a person’s chargeable estate when considering the inheritance tax charge arising on death.

The relevant changes will apply equally to UK-registered pension schemes and Qualifying Non-UK Pensions Schemes (QNUPS). They will also apply to defined contribution and defined benefit schemes, and the distinction between discretionary and non-discretionary schemes will be removed.

A small number of specified pension benefits will remain outside the scope of charge, including where funds can only be used to provide a dependants’ scheme pension.

Responsibility for Calculating Inheritance Tax

The deceased’s personal representatives (PRs) will need to communicate with the Pension Scheme Administrator(s) (PSAs) to obtain the details of the unused pension and death benefits payable as part of the executry administration. PSAs must respond with the required information within 2 months of receipt of the request. PRs will be responsible for calculating the total inheritance tax charge arising on the deceased’s death and apportioning the available nil rate band between the value of their personal estate and the unused pension and death benefits.

Responsibility for Reporting and Payment of Inheritance Tax

PSAs will be responsible for reporting the details of unused pension funds and death benefits payable on the death of a member to HMRC. PSAs will only be required to report information to HMRC if there is an inheritance tax liability.

PSAs will also be responsible for paying the inheritance tax attributable to the unused pension and death benefits directly. The standard 6-month deadline for payment of inheritance tax will apply.

The Registered Pension Schemes (Provision of Information) Regulations 2006 which set out the current information-sharing obligations between PRs, PSAs and HMRC will be amended to reflect the proposed new sharing processes.