Changes to inheritance tax rules and pensions
06.01.2025
On 30 October 2024, the Chancellor delivered the Autumn budget. This included an announcement that, from 6 April 2027, unused pension funds and pension death benefits will be included in the value of an estate for inheritance tax purposes.
Inheritance tax may be due when someone dies, and the value of their estate exceeds the threshold known as the ‘nil-rate band’. Currently, this threshold is set at £325,000 and the Chancellor has confirmed it will remain frozen at this level until at least 2028.
Until now, most pension death benefits have been excluded when valuing an estate for inheritance tax liability. The government now plans to remove this exemption.
What does it mean for me?
As a member of the scheme, your beneficiaries may be entitled to death benefits when you die, including a death-in-service lump sum if you’re currently paying in.
While you may be concerned about how the upcoming changes could affect you and your beneficiaries, it’s important to keep in mind that these plans are in the early stages. The government has issued a consultation to look at the practicalities of putting these amendments in place and many details could change between now and the date the final legislation is passed.
Even once the new rules are put in place, many death benefit lump sums and unused pensions will still be paid tax-free from the Scheme. This is because they may either fall below the inheritance tax threshold or be eligible for exemptions that could reduce or eliminate inheritance tax liability.
It’s important to note that inheritance tax is not payable when an estate is passed to a spouse or civil partner, and this will continue even with the new measures. This means that inherited pensions, and dependant’s pensions from the Defined Benefit section of the Scheme, paid to a spouse or civil partner, may still be exempt from inheritance tax.
Additionally, you can transfer any unused inheritance tax allowance to your spouse or civil partner. For example, if you die and your spouse or civil partner inherits your entire estate, any unused portion of your £325,000 nil-rate band can be passed on, potentially increasing their nil rate band to £650,000.
If a property is passed to a direct descendant, the residence nil-rate band may apply, increasing the threshold for inheritance tax by an additional £175,000. There are also other exemptions, such as those for charitable donations.
For more information on inheritance tax rules and allowances, please visit the government’s website: www.gov.uk/inheritance-tax
Next steps
The pension benefits payable in the event of your death depend on the section of the Scheme you are in and your status within it. More information, including how you can make or change a nomination for any potential lump sum death benefit that may be payable, can be found at the links below:
Defined Contribution (DC) section (members who joined the ABF Scheme after 1 October 2002)
Defined Benefit (DB) section (members who joined the ABF Scheme before 1 October 2002)
British Sugar section (members who, immediately before joining the Scheme on 6 April 2006, were members of the British Sugar Pension Scheme)
We are unable to provide you with any advice about your pension. If you think you may be affected by the changes to inheritance tax rules, we recommend discussing it with your Independent Financial Advisor (IFA). An FCA-registered IFA can help you review your estate planning and provide advice on how these changes may affect you based on your personal circumstances. You can find a financial adviser by searching the FCA register at: register.fca.org.uk/s/
This is the most up-to-date information we have regarding these changes. We will continue to keep you informed through this website and our annual Member Report as the situation evolves.
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