20 March 2026
The Government first announced proposals to bring certain pension benefits in scope of IHT in its 2024 Autumn Budget. Paving the way for these changes, the Finance Act 2026 received Royal Assent late on 18 March, although the final Act is not yet available.
Lucy Dunbar, partner, comments: “The IHT changes will bring most unused pension funds and death benefits into scope of IHT in respect of deaths on or after 6 April 2027. The policy reasons underpinning this change include ensuring that pensions tax relief is being used for its intended purpose (namely, encouraging saving for later life) by removing the opportunity for individuals to use pensions for IHT planning.
“Given existing exemptions and nil rate bands, Government estimates suggest that approximately 8% of estates will be caught by the changes each year. From an individual perspective, this means that the vast majority of estates will not, ultimately, be subject to IHT. In further good news, not only will death-in-service benefits payable from a registered pension scheme and dependants’ scheme pensions be exempt, so too will joint life annuities.”
Dunar continued: “However, the new measures will impose onerous new obligations on pension schemes, not least by increasing information flows between them and personal representatives. Personal representatives can also require pension scheme administrators to withhold payment of certain benefits for up to 15 months and, subject to certain conditions being met, both PRs and beneficiaries can direct pension scheme administrators to pay any IHT due.
“There is no doubt that the new Act sets the stage for a monumental shift in the tax treatment of pension benefits. With pension schemes administrators usually (but not always) the scheme trustees or managers, they will need to take steps to get ready for another starring role when the IHT and pensions curtain finally rises next April.”
Dunbar Concluded: “The Framework should encourage arrangements which are genuinely in a position to improve value to do so quickly. We suggest allowing amber arrangements a grace period to improve before they are required to close to new business. We also suggest reconsidering the timing of data publication, assessments and improvement plans. We urge the authorities to provide DC schemes with reassurance that unhelpful duplication between the chair’s statement requirements and the VFM framework will be removed. Unless changes are introduced quickly, schemes may face overlapping and inconsistent disclosure requirements for different types of default across different reporting cycles.
“Producing a VFM assessment will require a significant amount of resource. Schemes will feel this acutely when the Framework is first implemented but also on an ongoing basis as assessments become part of the annual cycle. A careful balance is needed to ensure that this is achievable in practice and that the assessment will be genuinely useful for schemes, employers, the industry and pension savers. But for the first assessments to be ready in 2028 based on 2027 data, it’s vital that schemes and providers are given clarity on the final Framework soon.”
Read the full consultation response.
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