Draft Finance Bill 2025-26: Pension changes
The draft Finance Bill for 2025-26 was published on 21 July. In this article, we set out the key inheritance tax (IHT) measures in relation to pensions included in the bill.
Draft Finance Bill 2025-26: Summary and changes
From 6 April 2027, unused pension funds and death benefits payable from a pension will be within an individual’s estate for IHT purposes.
Key provisions
- The value of unused pension funds and pension death benefits will be included within the member’s estate for IHT purposes on their death, regardless of whether the pension scheme administrators or scheme trustees have discretion over the payment of any death benefits.
- Death in service benefits payable if a person dies while in employment will be excluded from IHT.
- The existing IHT principles providing an IHT exemption for death benefits passing to a surviving spouse or civil partner, and registered charities will be maintained.
- The government’s position remains that agricultural property relief and business property relief will not be extended to assets held within pension schemes. For IHT purposes, the nature of the underlying assets held by a pension scheme is not considered.
- Personal representatives will be responsible for reporting and paying the IHT due.
Comment
While the pension changes have not received the same media attention as the APR/BPR changes, they are likely to result in significant behavioural changes from April 2027 with clients choosing to draw down their pensions and use them as a source of income or to make gifts.
Clients should review their pension nomination forms prior to 6 April 2027 to ensure that they nominate their surviving spouses where applicable and unnecessary IHT is not payable on the first death.
Looking ahead
Please do get in touch with us or your usual Browne Jacobson contact if you would like to discuss how the draft legislation could impact you and your family and to explore planning opportunities relevant to your particular circumstances.
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