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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April 6th, 2025 marks the beginning of a major shift in UK taxation. Labour’s new tax reforms have officially scrapped the long-standing non-domiciled (non-dom) tax status — a move that targets wealthy individuals who live in the UK but, under the new non dom regime, have been able to mitigate UK tax on their overseas income and gains. This change spells the end of a tax break that attracted many high-net-worth individuals (HNWIs) to the UK and is already causing ripples across the country’s elite financial circles. The message is clear: if you live here, you pay here. Let's break down what has changed. What Was the Non-Dom Tax Regime? The non-dom tax regime allowed individuals residing in the UK, who claimed their primary home (domicile) to be outside the UK, to avoid UK income and capital gains taxes by not bringing any foreign earnings or gains back into the UK. This system made the UK an attractive location for individuals with international earnings. We covered this in more detail here. What Has Changed? Since 2025-26 tax year, the government has implemented several significant reforms. These reforms include: 1. End of Non-Dom Status All UK tax residents will now owe UK income tax on all global income and gains, regardless of whether these were brought into the country or not. 2. Inheritance Tax (IHT) on Foreign Assets Non-doms could previously avoid UK Inheritance Tax on assets they held outside the UK; now individuals who have lived here for more than four years will be liable for IHT on all their global estate assets. 3. Temporary Reliefs To assist the transition, temporary measures include the following: Tax Year 2025-26 will see a 50% reduction on foreign income tax. Capital Gains Tax (CGT) laws allow us to rebase overseas assets based on their value as of April 2019 for CGT purposes. Temporarily, bringing money from abroad may not incur full tax charges upon entering the UK. Why Has the Government Made These Changes? According to Labour, eliminating non-dom status will provide many advantages: Enhance tax fairness Raise extra funds to support public services Close longstanding loopholes used by the wealthy Rising Tax Bills HNWIs with overseas assets and income will now face significantly increased tax obligations that may have an effect on personal finances, family planning and wealth transference. Making Decisions About Moving Abroad Some individuals are already leaving the UK in order to settle in countries with more advantageous tax regimes. Some common destinations for relocation include: United Arab Emirates (UAE) does not levy income or capital gains tax Switzerland provides fixed annual tax arrangements for its most wealthy citizens Italy - flat tax of EUR100,000.000 on foreign income for new residents Monaco does not levy personal income tax for residents Concerns Raised About Impact Within Industry Concerns are being expressed that this could lead to a decrease in: Investment into UK businesses Jobs funded by private wealth Donations to UK Charities What About Entrepreneurs? Many entrepreneurs utilise non-dom status to reduce tax on international business earnings, however, these changes could require: Establishing headquarters or structures outside the UK Reconsider ownership of intellectual property or company shares An investigation of how profits and dividends are managed is important to ensure long-term growth. What Should Be Done Now? If you or those you work with have been affected, taking immediate steps is key to their safety. Here are a few things you can do. 1. Consult With A Specialist Tax Advisor Every situation varies. Seek tailored guidance from someone familiar with both UK and international tax regulations. 2. Evaluate Your Financial Structures Evaluate how you hold assets - for instance through offshore companies or trusts. Any necessary changes must be implemented for optimal efficiency and compliance purposes. 3. Consider Relocating If the UK's new tax rules no longer suit, you might wish to explore living elsewhere where tax liabilities would be lower. Be sure to carefully consider all legal, financial, and family aspects prior to making any decisions. Summary The changes to the non-dom tax regime mark a profound transformation for those who rely on global income and wealth for tax payments, especially those living abroad. Although intended to increase fairness, these reforms also pose challenges to those accustomed to using it. Now is the time to review your plans, secure your assets, and seek professional guidance. How Can We Assist? At our offices in both the UK and UAE, we assist individuals, entrepreneurs and professional advisors in making well-informed decisions. If you have any queries about this article or need advice then get in touch.