IHT changes on pension funds: Your questions answered

Following on from last week’s articles around the forthcoming changes to Inheritance Tax (IHT) and pensions (due to take place from April 2027), we answer key questions clients have been asking.

Question:

In light of the upcoming changes to pensions and IHT, should I revisit my pension expression of wishes?

Answer:

Possibly.  The existing exemption from IHT for pension death benefits passing to a surviving spouse or civil partner will be maintained post April 2027.  However, if death were to occur before April 2027, it may be prudent for the unused pension funds to be passed directly to children, bypassing the spouse.  This would then avoid the unused pension benefits becoming part of the spouse’s Estate and a potential IHT charge on the second death.  The expression of wish could then be changed back in favour of the spouse post April 2027.

Question:

Will I still be able to leave all or part of my unused pension fund to charity free of IHT post April 2027?

Answer:

Yes, the existing exemption from IHT for pension death benefits passing to registered charities will be maintained.

Question:

If an individual wanted to access their tax free cash from their pension plan, does the 14 days cancellation rights apply?

Answer:

A topical question, given the media speculation. If an individual accesses their tax free cash, unfortunately, cancellation rights do not apply.

HMRC are very clear on this point in that the cooling off period relates to a new product being purchased and not the receipt of a pension commencement lumpsum payment.

For further information on this point then the following link to a recent HMRC Newsletter should help: HMRC Newsletter

Question:

I have Fixed Protection. Is there likely to be a change to the level of tax free cash that I can take?

Answer:

Our understanding is that the tax free cash entitlement is written into the current Finance Act.  To change this entitlement overnight, would mean a change of legislation. No one can ever be 100% certain of what may happen in any budget. It could be catastrophic if this was changed with no notice or offer of protection.