Legal News | 4.12.25
Budget Update: Personal Representatives and Pension Liability
At Wansbroughs we continue to digest the details of last week’s significant Autumn Budget. A brief overview of the key headlines for private clients can be found in our previous newsletter: Fiscal blackholes and Budget revelations.
The Budget has delivered some significant developments for the current inheritance tax (IHT) regime, including pensions from April 2027. Last week, two important announcements were made that will support personal representatives when dealing with pensions of those who have died.
The current rules
At present, it is possible for individuals to accumulate unlimited savings in their pension and, if they are able to draw on other means to support their retirement, leave their unused pension assets to their chosen beneficiaries without an IHT charge on death.
What’s changing?
From 6 April 2027, most unused pension funds and pension death benefits will be within the value of a person’s estate for IHT purposes. The personal representatives of the individual who has died are then liable for reporting and paying any IHT due on those unused pension funds and pension death benefits.
Impact of the Budget
One of the issues with the proposals, as they were originally outlined by the Government, was that although personal representatives were liable for paying the IHT due on a pension, they would have had no way of accessing the pension assets or power to direct the pension scheme administrator to meet the IHT liability.
Last week’s Budget made two important announcements to help alleviate these issues:
• Firstly, a mechanism will be introduced for personal representatives to direct a pension scheme administrator to withhold 50% of the taxable benefits of a pension for up to 15 months after death and, if instructed, then pay any IHT due on the pension directly to HMRC;
• Secondly, personal representatives will be discharged from liability where a pension is discovered after they have received clearance for settling the IHT due on an estate. This is so long as HMRC are happy that the personal representatives have made every effort to locate the pensions.
We shall await further details about how these proposals will operate in practice but they will be welcome news for personal representatives.
If you are concerned about the upcoming changes around IHT and pensions, please contact the Private Client team for further advice at: wealth@wansbroughs.com.
