Overview
- The government’s draft legislation, first published in the 2024 Autumn Budget, would bring unused defined‑contribution pension pots into the Inheritance Tax (IHT) estate from 6 April 2027.
- Under the proposed rules the unused pension value would attract the standard 40% IHT rate while withdrawals after age 75 remain subject to beneficiaries’ marginal Income Tax rates of up to 45%.
- Beneficiaries can ask providers to pay a proportional share of IHT from any pension pot worth £1,000 or more, providers must then remit payment to HMRC within 35 days, and reporting has flagged an overall six‑month settlement window.
- The draft includes a safeguard allowing beneficiaries to offset Income Tax on withdrawals by claiming a deduction for IHT already paid, but advisers warn timing, valuation and coordination problems could prevent full relief in practice.
- Financial planners urge people to review wills and estate plans now and consider mitigation tools such as lifetime gifts, spousal transfers, trusts or reliefs for business and agricultural property once the final rules are published.