Budget 2024: IHT pensions and the end for QNUPS?
Andy Wood • October 31, 2024
IHT pensions and the end for QNUPS?
Could we get any sleepier than IHT and pensions.
You're forgetting, this is the Rachel Reeves rock and roll budget.
Brace yourselves.
Current Tax Position on Death
Other than in the case of non-discretionary pension schemes, the benefits in a pension scheme escape IHT on death.
However, that is not the full picture.
Generally speaking, the surplus value in a pension scheme may be subject to income tax in the hands of the recipient, depending on whether the member has reached the age of 75 or not.
If the member dies before the age of 75, then the death benefits are usually paid free of tax (though this is a simplified answer).
Death benefits paid when the individual dies age 75 or over are taxed at the recipient’s marginal rate of income tax.
New Proposals
In the Budget, we were told that unused pension funds and death benefits payable from a pension will be added to a person’s estate for Inheritance Tax purposes.
This will take effect from 6 April 2027.
It will be down to pension scheme administrators to report and pay any IHT due.
As such, it seems to be the intention that, where the pensioner is over the age of 75, that the surplus pension fund could be subject to 40% IHT on death. If, say, a child or grandchild receives benefits then the beneficiary will also be subject to tax at a rate of up to 45% on those receipts.
This means that the funds could be subject to an overall rate of 67%!
Of course, the pension is likely to have benefited from tax relief on contributions going in and tax-free investment growth (generally).
But, all the same, seems a bit stingy, Rachel.
What about QNUPS?
I’ve not seen much about QNUPS in the comments I’ve seen elsewhere. However, it is abundantly clear that the IHT changes will also apply to QNUPS.
The Consultation Doc on this aspect states the following:
“1.13. While the relevant changes will apply equally to UK registered schemes and QNUPS, any references to pension schemes in this consultation document should be taken as referring to UK registered pension schemes administered by PSAs. We recognise that QNUPS have a different administrative structure to UK registered schemes, and stakeholders are welcome provide any views on how these changes should be implemented for QNUPS (see Question 8 below). “
This is perhaps not a surprise bearing in mind the number of people marketing QNUPS as IHT saving vehicles.
But those days appear to be over.
That’s a shame.
Conclusion
Where pensions and QNUPs might have been sold on the basis of their IHT efficiency in the past, this will not be the case from the new rules taking effect in April 2027.
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