Estate Planning: New Tax Rules for DC Pensions
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Jan Atkinson
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New changes to the taxation of DC Pensions will impact estate planning decisions
In the Autumn Budget 2024, the Chancellor announced future changes to the taxation of Direct Contribution Pensions (DCs), which will affect many people. These changes will come into effect on 6 April 2027, but it is not too early to consider how they will impact estate planning decisions already made.
Currently, undrawn pension funds are not part of a deceased person’s estate and if written in trust or nominated for a beneficiary on death, the recipient receives the funds without any Inheritance Tax (IHT) being deducted. Provided the pension holder dies before the age of 75, any income drawn down by the recipient is also free of income tax.
From 6 April 2027, undrawn pension funds will be treated as part of a person’s estate for IHT calculation. This new arrangement will greatly enhance the tax receipts for HMRC, as for many people, their pension fund is a major proportion of their overall assets.
The administrators of the pension scheme will be responsible for paying the IHT on the pension. Therefore, there will need to be cooperation between them and the PRs of estates, so that the relevant information can be exchanged to enable the IHT to be properly apportioned between the pension and the estate.
The new rules are likely to result in a different approach to pensions, which are often currently retained while other assets being used up first, in view of the current favourable tax arrangements for them, which are not going to be in place much longer.
How can we help?
Osbornes can provide expert guidance on navigating the new taxation rules for Direct Contribution Pensions (DCs) coming into effect on 6 April 2027. Our team of experienced estate planning professionals will help you understand the implications of these changes on your pension funds and overall estate. We offer tailored advice to ensure your estate planning strategies are optimized, minimizing potential tax liabilities and ensuring a smooth transition under the new regulations. Please contact us by:
- Filling in our online enquiry form; or
- Calling us on 020 7485 8811
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