Autumn Budget – The highlights series by Sopher + Co (Article 4: Inheritance Tax and Pensions)

Welcome to the fourth article in our Autumn Budget – The highlights series. If you have missed any of the previous articles from the series, please visit our blog. 

In this article, Emma Cottrell, Tax Director, highlights the changes to Inheritance Tax and Pensions:

• Domicile: The concept of domicile is being replaced by a residence-based test, with long term residents being subject to Inheritance Tax (IHT) on their worldwide assets if they have been UK tax resident 10 out of the previous 20 tax years. The IHT tail for residents leaving the UK has been extended to up to 10 years, depending on how many years they were UK resident.
• Offshore trusts: Protected settlements will now fall within the scope of UK IHT if the settlor is long term resident. Whilst the settlor is not long-term resident, the excluded property status remains. There will be no change for excluded property trusts where the settlor has died before 6 April 2025.
• Agriculture and Business Property Relief: from April 2026 the full 100% relief from IHT will be restricted to the first £1m of combined business and agricultural assets, with the relief reducing to 50% after the £1m. The IHT rates will be reduced from 40% to 20%.
• Pensions and death benefits: From April 2027 unused pension funds and death benefits will be included within the taxable estate. The pension scheme administrators (PSAs) will become liable for reporting and paying any IHT due on unused pension funds and death benefits. These changes are under consultation, however the consultation is limited to the procedures for reporting and paying the IHT on death benefits. It is not clear if life policy products will be exempt from IHT as life policy products held through or in conjunction with pension schemes as part of the employer's benefit package are outside the scope of the consultation.
• The main rate of IHT remains at 40 per cent: The nil rate band  (NRB) for IHT which is currently £325,000 for all estates, and the residence nil rate (RNRB) at £175,000 for estates under £2m will be frozen to April 2030. With the changes above in pensions and death benefits some estates will now be over £2m and therefore the RNRB will no longer be available.

Please note, this information is intended as a general overview. It is important that professional advice is sought on specific issues relevant to your circumstances. If you’re considering a move to the UK and would like to speak with one of our tax advisers, please contact us to find out more.