Autumn Budget Rules On SIPP & SSAS Pensions

• New rules: From April 6, 2027, most unused pension funds and death benefits from pension plans will be subject to IHT. This aligns pension plans with other inherited asset classes.
• Scope: Both uncrystallised funds and funds left in drawdown are included. However, dependent scheme pensions and charity lump sum death benefits are excluded from IHT.

• Process: The process involves multiple parties:
  1. Personal representatives (PRs) inform the pension scheme administrators of the member’s death.
  2. Scheme administrators provide details of unused funds and death benefits to the PRs.
  3. PRs calculate the IHT due using a new Government calculator and inform the scheme administrators of the IHT liability.
  4. Scheme administrators pay the pension’s share of the IHT bill and distribute the remaining assets to the beneficiaries.

• Estate calculation: For an estate worth £1 million with a £400,000 pension fund, the new rules would add the pension value to the estate, increasing the IHT liability. The PRs and scheme administrators must work together to calculate and pay the IHT, considering the nil-rate band and other allowances.
• Challenges: The process is complex due to the involvement of multiple parties and the need for timely information exchange. The six-month deadline for paying IHT adds to the complexity, especially for illiquid assets like property.

• Liquidity issues: Pensions holding illiquid property, such as land and buildings face significant challenges in raising the necessary funds to pay IHT within the six-month deadline. This could involve selling the property or taking out loans, both of which can be time-consuming and complicated.
• Multiple owners: In schemes like an SSAS, where there are multiple members owning a share of a property, the complexity increases. Coordinating the sale or loan against the property among multiple owners can be difficult and may delay the IHT payment.

• Review holdings: It may be prudent to review the holdings within an SIPP and SSAS, especially those with significant illiquid assets, to plan for potential IHT liabilities.
• Consider consolidation: Consolidating multiple pension schemes into fewer ones might simplify the IHT calculation and payment process.
• Plan for liquidity: Ensure there are sufficient liquid assets within the pension to cover potential IHT liabilities, or consider alternative strategies like life insurance to cover the IHT bill.

• Expert guidance: Financial advisers can offer expert advice tailored to your specific situation, helping you understand the implications of the new rules and how best to prepare.
• Strategic planning: They can assist in developing a comprehensive estate plan that considers all your assets, including pensions, and ensures that your wishes are carried out efficiently.
• Tax efficiency: Advisers can help identify strategies to minimise your tax liabilities, such as using life insurance to cover IHT or restructuring your investments.
• Peace of mind: Knowing that a professional is managing your financial affairs can provide peace of mind, allowing you to focus on other important aspects of your life.

How can we help?

Zoe Till is a Partner and Chartered Financial Planner in our expert Independent financial advisers team. Zoe’s areas of expertise include investment advice, retirement planning, IHT and lifetime cash flow modelling.

If you would like any advice concerning the subjects discussed in this article, please get in touch with Zoe or another member of the team in Derby, Leicester, or Nottingham on 0800 024 1976 or via our online form.