I tend to trust material coming from First Actuarial. It is simple and clear.
It’s good to see a note on social media on a topic that created uncertainty for millions of workers whose dependents will get a lump sum without threat of tax if they die while employed by a company that offers “death in service.
The value of death in service payments is not recognised till a payment is paid out and then it is an unexpected benefit to a family. It was not right that the value of that benefit could become part of a tricky discussion with the revenue over whether tax might be due.
Many people get this defined benefit but are not , nor ever were accruing pension sponsored by the employer offering them life insurance. Many save into DC arrangements and if they die will have a pot that may trigger a pot. Those building up a pension in a DB or CDC scheme that pays a pension (to a spouse or partner) should not see that pension become part of the estate assessed for inheritance tax .
There is of course a taxation problem for the well off saving into a DC pot but it may be that moving to CDC assuages that worry (so long as the CDC pays a dependent’s pension).
For First Actuarial and advisers and administrators, the situation is easier too.
I like the sentiment from Lee French and from First Actuarial. It is important that we think of pensions as protection for those who live and life assurance as protection for those who live on when the earner has departed.
Democratic Deficit
Retrospective tax legislation undermines the Rule of Law and the very essence of a democratic society.
As Judge David Goldberg KC argued, taxpayers are entitled to rules that are clear, predictable, and “not capable of springing surprises.”
When the state changes the law backward, it violates the principle of legal certainty.
Democracy relies on a social contract where citizens consent to follow known rules; if those rules can be rewritten after the fact, that consent is rendered meaningless.
It transforms the law from a stable guide for conduct into an arbitrary tool of the state, stripping individuals of their ability to plan their lives and finances with any degree of security.
67% Tax will exercise the imagination and the children of the middle class, who cannot afford a pension, will be the losers.
A change in future inheritance tax (IHT) is generally not considered true retrospective legislation, but it is often perceived that way because of how inheritance tax works, particularly regarding “potentially exempt transfers” (gifts) and the seven-year rule.
Whether a change is truly retrospective depends on whether it penalises actions taken before the law was changed, or merely alters the tax landscape for future events.
Death duties in the UK peaked at a top marginal rate of 85% in 1969.
I think, John, even you’ve realised how that 67% headline rate may in fact fall below 50% because of a form of double tax relief?
The double relief is wrong, so it’s still 67% and at the margin where the estate tips over £2M the loss of the £175,000 (RNRB) is where the cliff edge goes over 80%
Exchange with a provider explaining the error:
”
“My reading of section 567B ITEPA 2003 being introduced by the Finance (No. 2) Bill is that it is targeting pension benefits paid to beneficiaries where the IHT liability has been paid from value outside of the pension. Effectively, this prevents double taxation over the longer term, as taking the example provided;
the fund would have £1,000 within it,
this £1,000 has been subjected to IHT of £400, but this has been paid from the ‘free estate’ elsewhere so the fund value of £1,000 is preserved within the pension wrapper, and
without any ‘credit’ for the IHT the beneficiary would be liable to income tax on the full £1,000 (assuming a death over age 75, etc.), which would constitute double taxation.
Therefore, to calculate the applicable income tax the £1,000 benefit paid is reduced by £400 bringing the amount subject to income tax down to £600 i.e., income tax of £120 – £270 (assuming E&W rates of 20%-45%).
Contrast this with the IHT is deducted from the fund so the amount left to be paid to the beneficiary is £600. The income tax is levied on £600 resulting in income tax of £120 – £270 (assuming E&W rates of 20%-45%).
Therefore, the new 567B of ITEPA 2003 is seeking to ensure the same overall combined IHT and income tax outcome wherever the IHT liability on the unused pension is paid from.
In my view, the interpretation from XXXX KC may have gone wrong by giving credit for the IHT ‘paid’ twice. In the example provided, this happens because it is deducted from the £1,000 overall fund value, but then again when assessing the income taken for tax.
In my view and my reading of the draft legislation, it can only occur once”
The Finance (No. 2) Bill 2026, which received Royal Assent last week, on March 18, 2026, introduces amendments to the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) to prevent double taxation when inheritance tax (IHT) is applied to unused pension funds from April 6, 2027.
* Deduction for IHT Paid: Where IHT is paid on a “notional pension property” (unused pension funds) and the burden falls on the beneficiary, a deduction is allowed against the beneficiary’s taxable pension income. The deduction is equal to the amount of IHT paid.
* Carrying Forward Excess Deduction: If the IHT paid exceeds the taxable pension income in a specific tax year, the excess can be carried forward to future tax years.
I agree this may be quite common, which means the reduction from
67% overall may take some time.
Didn’t you pose this example on an earlier comment somewhere?
The RNRB loss over £2m is also tapered, although I appreciate this is of very marginal interest and effect.
Pingback: What’s wrong with life assurance paying your tax? | AgeWage: Making your money work as hard as you do