We wanted to share a helpful update regarding Inheritance Tax (IHT), which could provide greater flexibility and reassurance when planning your estate.

Under the proposed changes, it is expected that, in many cases, IHT can be paid directly from pension funds and certain investment accounts, rather than your beneficiaries having to fund the tax bill themselves.

What this means for you

  • Pension schemes are expected to offer the option of paying IHT directly from pension funds where the pension-related IHT liability is £4,000 or more.
  • For liabilities below £4,000, providers may still offer this facility, although they are not expected to be required to do so.
  • Some investment providers have also confirmed that they intend to allow IHT to be settled directly from investment accounts, subject to their own processes and requirements.

Why this matters

One of the practical challenges of IHT planning is determining who will fund the tax bill before assets can be distributed. These changes are intended to simplify that process, helping to reduce the administrative and financial burden on your beneficiaries.

Important considerations

While we expect this approach to become widely available across UK pension schemes for larger IHT liabilities, individual provider processes may differ.

The option is generally expected to require a request from your executors or personal representatives and will not happen automatically.

We will continue to confirm how these arrangements apply to your specific pension and investment providers.

What you should do next

There is no immediate action required. As part of your ongoing financial planning, we can:

  • Review your pension and investment arrangements
  • Confirm how your providers intend to operate these new options (based on current information, we expect all of the providers we regularly use to support them)
  • Ensure your estate planning remains aligned with your wishes and objectives.

Overall, these proposed changes represent a positive step towards making IHT administration more straightforward and giving families greater flexibility when settling an estate.

Get in touch

If you would like to discuss how these changes could affect your own circumstances, please get in touch and we’ll be happy to help. Email hello@intelligentpensions.com or call 0800 077 8807.

Please note

This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.

The Financial Conduct Authority does not regulate estate planning or tax planning.