Advisers beware: Navigating the Speculation Around Pensions and Inheritance Tax

In recent weeks, there has been a flurry of media speculation regarding the potential introduction of Inheritance Tax (IHT) on pensions after April 2027. This has understandably caused concern among many of our clients, who are worried about the possibility of double taxation—being subject to both IHT and income tax in the hands of a non-spouse beneficiary. However, it's important to note that, as of now, there has been no official confirmation from HMRC or HM Treasury on this matter.

The Current Situation

The head of financial planning at Capital Asset Management, Fiona Price, recently shared some insights from Capitals’ trusted external compliance and technical team, to help clarify the situation.  The double taxation point is purely speculative at this stage. HMRC has not issued any draft regulations, and there has been no official guidance on this topic. The proposed introduction of IHT into the world of pensions is still more than two years away, and we do not yet know how the regulations will pan out.

Advising Clients with Caution

Given the current uncertainty, it is crucial to exercise caution when advising clients on this matter. We recommend avoiding definitive language such as "will," "certainly," or "likely," which may convey a sense of certainty that does not exist. Instead, focus on goal-oriented decisions based on the current known legislation. If a client wishes to make a decision based on speculation, it is important to highlight that the proposed plans are subject to change, and nothing can be determined until the law is at least drafted.

Awaiting HMRC Guidance

HMRC has stated in their last newsletter that they will respond to the consultation that closed on 22nd January. While they did not provide a firm date for this response, we hope that it will offer some clarity on the potential double taxation issue. Until then, our (Capital Asset Management) stance remains that any advice should be based on a client's needs and objectives within the boundaries of the current law and legislation.

Conclusion

While the media may be abuzz with speculation about potential changes to IHT on pensions, it is important to remember that nothing has been confirmed by HMRC or HM Treasury. By exercising caution and focusing on current legislation, we can help our clients make informed decisions that align with their needs and objectives.