Question to the HM Treasury:

To ask the Chancellor of the Exchequer, what assessment her Department has made of the potential impact of the proposal for unused pension funds and death benefits to be subject to Inheritance Tax on beneficiaries; and if she will make it her policy to cap the level of Inheritance Tax paid on such funds and benefits.

Most unused pension funds and death benefits payable from a pension will form part of a person’s estate for inheritance tax purposes from 6 April 2027. This removes distortions resulting from changes that have been made to pensions tax policy over the last decade, which have led to pensions being openly used and marketed as a tax planning vehicle to transfer wealth, rather than as a way to fund retirement. These reforms also remove inconsistencies in the inheritance tax treatment of different types of pensions.

The Government has published a tax information and impact note, which is available at www.gov.uk/government/publications/inheritance-tax-unused-pension-funds-and-death-benefits/inheritance-tax-unused-pension-funds-and-death-benefits.

The legislation for this reform is included in Finance Act 2026. A cap on the level of inheritance tax related to unused pension funds and death benefits payable from a pension would be inconsistent with the policy objective and reduce the revenue to help fund public services. More than 90 per cent of UK estates will continue to have no inheritance tax liability in 2030-31 following these changes and the reforms will only affect a minority of those with inheritable pension wealth.