The government has clarified that payments from stand-alone registered group life pension schemes will not be included when calculating inheritance tax liability when the rules change to include pensions within the IHT net.
This confirmation aligns the treatment of retirement benefit schemes that provide death-in-service benefits.
An earlier draft of Clause 63 of the Finance Bill required members to have been actively accruing benefits under a scheme at the time of death to qualify for an exemption.An amendment to the Bill earlier this month clarified the government’s position on the issue.
The Government is proposing that unspent DC pension pots are included within a person’s estate for IHT purposes from April 2028. However, concerns have been raised that this rule change could see those receiving payout from life insurance policies also caught by this tax.
Group risk industry body Grid said it has been seeking clarification about this rule change to ensure those covered by group life policies are not affected. Grid said that while the draft of the clause suited pension schemes with ongoing retirement benefit accrual, it created uncertainty the eight million plus employees covered by stand-alone death benefit arrangements, who cannot accrue benefits because the scheme is not designed to do so.
Last July, Grid welcomed confirmation that death in service benefits will not be brought under the scope of IHT liabilities.
Katharine Moxham, spokesperson for Grid says: “The draft clause was nonsensical because people who are members of stand-alone registered group life pension schemes simply cannot accrue benefits.
“However, the wording left room for interpretation and caused understandable concern among employers and employees.”
She adds: “We are pleased that the government has listened and made the necessary changes to provide clarity and reassurance for our members, employers, and employees and their families.
“At a time when families are dealing with the loss of a loved one, those who have planned ahead to provide financial protection should not face additional inheritance tax on the very benefits intended to support those left behind.
“This is the right decision and reflects what we believe the government intended but had not set out clearly in the earlier version of the Bill.”
