People living abroad will no longer be able to buy cheap access to a UK state pension under measures announced in the Chancellor’s Budget today.
The government is closing loopholes in current Voluntary National Insurance contributions (VNICs) rules that allow those with a limited connection to the UK to build UK State Pension entitlement at a cheaper rate whilst overseas. The government is removing access to the cheapest Class 2 VNICs for individuals abroad and increasing the initial residency or contributions requirement for VNICs to 10 years. The government is also launching a wider review of VNICs, with a call for evidence to be published in the new year.
Other measures relate to the Inheritance Tax treatment of unused pension funds and death benefits. In future, personal representatives will be able to direct pension scheme administrators to withhold 50 per cent of taxable benefits for up to 15 months and pay Inheritance Tax due in certain circumstances. Personal representatives will be discharged from a liability for payment of Inheritance Tax on pensions discovered after they have received clearance from HMRC. This will be legislated for in Finance Bill 2025-26 and take effect from 6 April 2027.
The government is also transfer the Investment Reserve Fund in the British Coal Staff Superannuation Scheme to the scheme’s Trustees. This will be paid out as an additional pension to members of the scheme.
