This Practice Note describes how inheritance tax (IHT) rules affect the accrual and payment of benefits paid from HMRC-registered occupational and personal pension schemes. Significantly, there are ongoing reforms to bring unused pension funds and death benefits within the scope of IHT (subject to some exceptions) for deaths on or after 6 April 2027. For further information, see Practice Note: Inheritance tax and pensions: the Finance Act 2026 reforms. For details about the tax treatment of pensions more generally, and the forms that such benefits can take, see Practice Notes: Tax treatment of pensions—an introduction and Authorised and unauthorised payments. For a general overview of UK IHT, when it is charged and an explanation of relevant terms and issues, see Practice Note: IHT—the charge on death. As with other pensions-related Practice Notes, this Practice Note makes frequent reference to HMRC guidance contained within its own publicly-available practice manuals. When considering the practical effect of that guidance, the practitioner should note the view of the Upper Tribunal in Revenue and Customs Commissioners v Sippchoice

Until 5 April 2027, unused pension funds and pension death benefits are generally outside the scope of inheritance tax (IHT) and do not form part of the deceased member’s estate where the scheme trustees retain discretion over their distribution. However, IHT may apply where benefits are payable to, or can be directed by, the member or their estate. For further information, see Practice Note: Inheritance tax and pensions. From 6 April 2027, most unused pension funds and pension death benefits will be subject to IHT by being included in the deceased member’s estate, regardless of whether or not trustees have discretion over death benefit payments. This change was first announced in the Autumn Budget of October 2024, followed by a technical consultation, and was subsequently confirmed in July 2025 through the publication of a consultation response, draft legislation and an HMRC policy paper (that was later updated in November 2025). The consultation led to two key changes being made to the proposals initially consulted on: • IHT exemptions

Private Client analysis: The First-tier Tribunal (Tax Chamber) dismissed the Appellant’s appeal against an issued inheritance tax determination. The Tribunal held that section 10 of the Inheritance Tax Act 1984 (IHTA 1984) did not apply in relation to the purchase of an income interest in an offshore trust by the deceased, such that the purchase was a transfer of value for inheritance tax purposes. The Tribunal considered that both limbs of IHTA 1984, s 10(1) were not satisfied; firstly, the purchase was made by way of a series of transactions intended to confer a gratuitous benefit on the beneficiaries of the deceased and, secondly, the transaction was not made at arm’s length. The purchase was therefore a transfer of value subject to inheritance tax. This case provides a stark reminder that it is easy for a transaction to be caught by the definition of a transfer of value in IHTA 1984, s 3, but it is not necessarily easy to evidence and argue out of its application by reference to IHTA 1984, s 10. Written by Raghav Trivedi, barrister at St Philips Chambers in Birmingham.

What is inheritance tax? Inheritance tax (IHT) is broadly a tax charged on a person’s death, based on the value of that person’s net estate immediately before death. The net estate is the total value of the assets owned by that person, less the total value of debts and other liabilities owed by them. In order to prevent people avoiding the tax by making large gifts shortly before they die, the tax also extends to gifts made within seven years before the death. Some other gifts and events which are not linked to a person’s death are also caught by IHT. When is IHT payable? IHT is payable on transfers of value, which are made: • when a person makes certain gifts (or deemed gifts) during their lifetime • when a person dies • on certain events relating to trust funds Lifetime gifts There are three types of lifetime gifts for IHT: • exempt gifts • transfers of value which are immediately chargeable to tax, with the possibility of a further tax charge at a later date (‘chargeable lifetime transfers’) • transfers of value which do

Private Client analysis: The First-tier Tax Tribunal (FTT) decided that, contrary to the way in which a beneficiary with a right of occupation had commonly been treated, an occupying beneficiary had not in fact enjoyed an interest in position (IIP) in the deceased’s property under her will notwithstanding his occupation of the property until his own death a number of years later. This was due to several factors. The legacy to the beneficiary was a right to occupy the named property only and did not extend to a substitute property. Apart from the property, the deceased’s estate consisted only of a small amount of cash which was insufficient to discharge the inheritance tax (IHT) liability. The executor correctly advised the residuary beneficiaries that the property would have to be sold in order to pay the tax, in the absence of alternative funding, but wrongly advised that the sale would be subject to the beneficiary’s rights of occupation. In light of that advice, the residuary beneficiaries decided that the property should be retained as an investment, and that they would settle the IHT liability themselves, which they subsequently did, taking advantage of the ten-year instalment option. The beneficiary remained in occupation. HMRC argued that he had an IIP arising under the will and that therefore IHT was payable on his death in respect of the IIP. The FTT disagreed. This case highlights important points of principle about the nature of an IIP and when and how such interests are capable of arising in the administration of an estate. Written by Kate Selway KC of Radcliffe Chambers.

The court is not specifically referred to the question of inherited assets or the parties’ inheritance prospects by section 25 of the Matrimonial Causes Act 1973 (MCA 1973) or Schedule 5, Part 5 of the Civil Partnership Act 2004 (CPA 2004). However, it will consider issues connected with inheritance under the headings of the parties’ financial resources, their contributions to the welfare of the family and ‘all the circumstances of the case’. See also Practice Note: Contributions of the parties. In White v White, Lord Nicholls developed the concept of matrimonial as opposed to non-matrimonial property, but added that ‘in the ordinary course, [inherited assets] can be expected to carry little weight, if any, in a case where the claimant's financial needs cannot be met without recourse to this property’. Therefore, in practice, whether or not an asset is non-matrimonial is only likely to be of significance where the remaining assets are sufficient to meet the needs of the parties, ie where they are substantial. Where there is inherited property and the assets are substantial, issues

A tax on capital assets owned at death, some lifetime gifts or transfers, and some trust interests.

The amount up to which an estate has no inheritance tax to pay. Also known as the inheritance tax threshold.

A procedure by which a debtor is prohibited from voluntarily granting any deed by which any part of the debtor's land may be alienated to the prejudice of the inhibiting creditor.

This Practice Note considers the position regarding the diligence of inhibition in Scotland. For guidance on: • other forms of diligence in Scottish civil procedure, see Practice Note: Enforcement in Scottish civil litigation which, in turn, links through to detailed guidance on a number of forms of diligence available in Scotland • the equivalent in England and Wales, see: Introduction to enforcement—overview which, as well as giving an overview of this topic, links through to more detailed guidance on various aspects of domestic enforcement in England and Wales • cross-border enforcement, see Practice Note: Cross-border enforcement—a guide for dispute resolution practitioners which, as well as giving an overview of this topic, links through to more detailed guidance on various aspects of cross-border enforcement In 2020, the Scottish Government began a policy review of diligence measures in Scotland and this led to the Bankruptcy and Diligence (Scotland) Act 2024, which received Royal Assent on 15 July 2024. See Practice Note: Enforcement in Scottish civil litigation—Methods of enforcement in Scotland for details. Key:

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