Change to IHT on pensions proposals

HMRC has published a policy statement announcing an important change to its plans to include pension savings in an individual’s estate for inheritance tax (IHT) purposes. What’s the full story?

In her first budget last Autumn Rachael Reeves dropped a number of bombshells.  

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One of the biggest was her proposal to bring pension savings and death benefits within the scope of IHT from 6 April 2027. Currently, IHT only applies in very few circumstances. Where it does the pension companies may be responsible for calculating and deducting any IHT payable before passing the pension savings to the deceased’s beneficiaries. The Chancellor wanted to emulate this process when the new IHT rules were rolled out in 2027.

In a policy paper published on 21 July the government announced that the responsibility for calculating and paying IHT on pension saving will rest with the personal representatives of an estate, e.g. executors, and not pension companies. Although the consultation on the proposed new rules, which is open to everyone, doesn’t close until 15 September it had already become clear that the Chancellor’s original proposal was unrealistic.