21 July 2025
If you are covering the launch of HMRC's draft legislation on inheritance tax on unused pension funds and death benefits, please see the following comment from Roddy Munro, pension specialist at Quilter:
“Bringing unused pensions into the ambit of inheritance tax (IHT) is more than a technical footnote change from the Treasury. It is a seismic shift in how we now think about and plan for retirement and estate planning. The Treasury has today released draft legislation to bring undrawn pensions into scope for inheritance tax from April 2027. While the policy is now settled and financial plans are already beginning to change to accommodate it, the details of its implementation carry significant implications for families, advisers and pension providers.
“The government has already consulted on the policy and has thankfully listened to some responses. For example, a question mark had been left on whether death in service benefits payable from a registered pension scheme would be out of scope, which has today been confirmed. Additionally, significant concerns around the proposal to make pension scheme administrators (PSAs) liable for reporting and paying were noted within the consultation responses and the government has opted not to proceed with the PSA-led approach set out in the technical consultation document as a result.
“However, without further amendments, how the policy is eventually enacted risks turning a targeted tax reform into an administrative minefield. What we could end up seeing is a massive transfer of private wealth back to the state. What’s more, while only a small fraction of estates will pay more tax, a far greater number will face needless complexity, delays, and stress – often at the worst possible time.
“While this certainty brings much more clarity, clients are already acting. Trusts and other legacy planning tools are moving into the mainstream. And while policy will continue to evolve, the need for robust, well-informed advice will be critical.
“As the policy progresses, we will continue to feed into how the government can refine and develop the process for pensions and the payment of IHT. The industry has offered workable alternatives, and it’s time for the Government to listen.”
