PARLIAMENTARY WRITTEN QUESTION
Cohabitation: Inheritance Tax and Pensions (5 November 2024)

To ask the Chancellor of the Exchequer, with reference to point 28 of Table 5.1 of the Autumn Budget 2024, published on 30 October 2024, HC 295, whether unmarried couples will be liable for inheritance tax on Death-in-Service benefits over £325,000 payable on a death before retirement age.

Asked by:
Dame Harriett Baldwin (Conservative)

As announced at Autumn Budget 2024, from 6 April 2027 most unused pension funds and death benefits will be included within the value of a person’s estate for Inheritance Tax purposes.

The inheritance tax treatment of death-in-service depends on where the relevant funds are held and how they are paid out. Some types of schemes make death-in-service payments from a group life insurance policy held in trust and therefore not within the scope on that basis. Whilst other (often defined benefit) schemes will make death in service payments as a pension lump sum, which will be in scope.

This change will ensure that there is consistent tax treatment, regardless of whether the scheme is discretionary or non-discretionary. For example, benefits from non-discretionary defined benefit schemes, such as the NHS, are already within the scope of inheritance tax.

All estates have a minimum nil-rate band of £325,000. In addition to this, an estate may qualify for up to £175,000 of residence nil-rate band, where the deceased is passing on a qualifying residence to their direct descendants. This means that qualifying estate can pass on up to £500,000 before any Inheritance Tax will be due, regardless of whether the deceased was married or unmarried when they died.

Answered by:
James Murray (Labour)
11 November 2024