Funds

‘Using IHT to tax unused funds has been met with widespread horror’


There is no doubt the Budget announcement that unused pension funds will be included in the deceased’s estate for inheritance tax purposes created shockwaves through the pensions industry and beyond. 

The fact that some form of tax would apply on death was not particularly surprising – we all know the current rules are particularly generous – but using IHT as the means of taxing unused funds has been met with widespread horror. Not just from pension providers, but financial advisers, accountants and estate practitioners alike.

The strength of feeling on this matter is significant, evidenced by HM Revenue & Customs having received more than 500 responses to the technical consultation. 

Advisers have been on the front line dealing with (understandable) concerns from clients with sizeable pension savings. Much of the talk has been about flipping the order in which assets are used, so taking pension income first and then Isa and other assets later.

On death under 75 there is no big advantage to this. Funds in an Isa or elsewhere (other than a trust) will be included in the estate, so any unused pension funds are in the same position, not worse. 



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