Legislative change continues to reshape succession planning – and one of the most significant developments in the Finance Act 2026 is the treatment of pension funds and pension death benefits for inheritance tax (IHT) purposes.
From 6 April 2027, most unused pension funds and pension death benefits will be taken into account when calculating the value of a deceased person's estate for IHT purposes. While this change is primarily aimed at preventing pensions from being used as a tax-efficient vehicle for wealth transfer, it raises an important question for contentious private client practitioners – could this reform have wider implications beyond tax, particularly in the context of claims under the Inheritance (Provision for Family and Dependants) Act 1975 (the 1975 Act)?
What’s changing under the Finance Act 2026?
Historically, most pension benefits have fallen outside a deceased person’s estate for IHT purposes. This means that, on death, pension funds would often pass free of IHT.
However, clause 66 of the Finance Act 2026 alters this position from 6 April 2027 by bringing certain unused pension funds and death benefits within the scope of the taxable estate.
Transfers to a surviving spouse, civil partner or charity will remain exempt. However, for other beneficiaries, the inclusion of pensions in the IHT net significantly changes the tax landscape.
How are pension funds currently treated under the 1975 Act?
Claims under the 1975 Act are brought against the net estate. At present, as pension funds don’t form part of the net estate, they are beyond the reach of any such claims. However, from April 2027, as pensions will generally be included within the taxable estate, does that mean that any claim under the 1975 Act will extend to cover those pension funds too?
Does clause 66 of the Finance Act 2026 change the 1975 Act position?
At first glance, the answer is likely no. Clause 66 is, at its core, a tax provision. It expands the estate for IHT purposes, but it doesn’t expressly amend the definition of net estate under the 1975 Act.
On this view, the two regimes remain conceptually distinct. The inclusion of pensions for tax purposes doesn’t automatically mean they fall within the pool of assets available to meet claims under the 1975 Act. However, the Finance Act 2026 makes no mention of the 1975 Act and no guidance has yet been issued on this topic – plus of course it will be some time after April 2027 before any useful case law emerges.
Could the reform give rise to new arguments?
Despite this, the reform may open the door to new lines of argument.
Once pension funds are treated as part of the estate for IHT, claimants under the 1975 Act may question why those funds should remain beyond reach when the court is assessing reasonable financial provision. This creates a potential policy tension as pension funds could increase the overall IHT burden on an estate yet remain unavailable to meet the needs of anyone bringing a claim. Further, would or should the court have in mind the size of any pension pot when making 1975 Act provision from an estate?
In cases where a substantial proportion of wealth is held in pension schemes, this tension may become particularly pronounced. It’s not difficult to envisage arguments emerging that the court should take a broader view of the resources available, even if the statutory definition hasn’t changed.
Final thoughts
The direction of travel is clear. If pensions are increasingly treated as part of the estate for one purpose, it’s conceivable that pressure will build for a more consistent approach across regimes.
As with many legislative changes, the immediate impact may be limited, but the longer term implications could be more significant. This is an issue that private client practitioners, and litigators alike, will want to watch closely.
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