The Government has confirmed it is proceeding with its plans to include unused pension pots within inheritance tax (IHT) from April 2027 with the publication of draft legislation.

The proposals were first announced in the 2024 Autumn Budget, with the Government launching a consultation to seek industry feedback.

It appears that the Government has listen to certain concerns, with the legislation confirming that death in service benefits payable from a registered pension scheme will remain out of scope of IHT.

Furthermore, personal representatives will be liable for reporting and paying any IHT due, rather than pension scheme administrators (PSA).

The Government has estimated that around 8 per cent of estates will be affected each year and that it will raise approximately £1.5bn a year by 2029/30.

Its legislation confirmed that the proposals will come into effect in respect of pension member deaths on or after 6 April 2027.

Quilter pension specialist, Roddy Munro, said the confirmation was more than a technical footnote change from the Treasury, and that it represented a seismic shift in how we now think about and plan for retirement and estate planning.

"While the policy is now settled and financial plans are already beginning to change to accommodate it, the details of its implementation carry significant implications for families, advisers and pension providers," Munro continued.

"The Government has already consulted on the policy and has thankfully listened to some responses. For example, a question mark had been left on whether death in service benefits payable from a registered pension scheme would be out of scope, which has today been confirmed.

"Additionally, significant concerns around the proposal to make PSAs liable for reporting and paying were noted within the consultation responses and the Government has opted not to proceed with the PSA-led approach set out in the technical consultation document as a result."

However, Munro warned that, without further amendments, the policy risked turning a targeted tax reform into an "administrative minefield", depending on how it was eventually enacted.

"What we could end up seeing is a massive transfer of private wealth back to the state,” he stated.

"What’s more, while only a small fraction of estates will pay more tax, a far greater number will face needless complexity, delays, and stress – often at the worst possible time.

"While this certainty brings much more clarity, clients are already acting. Trusts and other legacy planning tools are moving into the mainstream. And while policy will continue to evolve, the need for robust, well-informed advice will be critical.

"As the policy progresses, we will continue to feed into how the Government can refine and develop the process for pensions and the payment of IHT. The industry has offered workable alternatives, and it’s time for the Government to listen."

---