This unexpected retrospective tax change has disrupted retirement plans and could leave those handling estates facing unwelcome surprises.
Unlike earlier reforms, such as Gordon Brown’s Lifetime Allowance, which included transitional protections, no such safeguards apply here.
Most unused pension funds and death benefits will now be counted as part of an estate for inheritance tax. Exceptions include death-in-service benefits, dependants’ scheme pensions, trivial commutation lump sums, and a dependant’s share of joint-life annuities.
Transfers to a surviving spouse or civil partner, as well as to charities, remain exempt.
These changes weaken the appeal of defined contribution pensions, effectively reversing the 2015 reforms that scrapped the 55% death tax on drawdown funds and eased near-mandatory annuitisation. Those freedoms had boosted contributions and kept more money invested for longer.