Written questions by Carling.

What assessment her Department has made of the potential merits of amending the definition of a charitable lump sum death benefit so that people with dependents do not face barriers to donating to charity from their pension.

At Autumn Budget 2024, the Government announced that 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. Where at least 10% of a person’s net estate is left to a qualifying charity, their estate is taxed at a reduced rate of inheritance tax of 36% instead of 40%. When considering this, the pension will fall within the general component of the estate. This component includes the deceased’s free estate and from 6 April 2027 will also include any unused pension funds and death benefits (called notional pension property). Any notional pension property that is paid to a qualifying charity will count toward the charitable giving conditions for the general component Further guidance can be found here: https://www.gov.uk/hmrc-internal-manuals/inheritance-tax- manual/ihtm45003. Guidance will be updated before the changes are implemented in April 2027. Charity Lump Sum Death Benefits can be paid free of Income Tax. These lump sums are deliberately limited to money purchase arrangements where the deceased member had no dependants. These rules are not changing as this ensures that pension funds are used to support dependants where they exist, while allowing schemes to pay out benefits where there is no other beneficiary.

With reference to changes to the inheritance tax treatment of pension pots whether it is her policy that a) the total estate will be taken to include the unused pension pot, and b) donations to charity made from the unused pension pot will be considered as contributing to the 10% minimum.

At Autumn Budget 2024, the Government announced that 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. Where at least 10% of a person’s net estate is left to a qualifying charity, their estate is taxed at a reduced rate of inheritance tax of 36% instead of 40%. When considering this, the pension will fall within the general component of the estate. This component includes the deceased’s free estate and from 6 April 2027 will also include any unused pension funds and death benefits (called notional pension property). Any notional pension property that is paid to a qualifying charity will count toward the charitable giving conditions for the general component Further guidance can be found here: https://www.gov.uk/hmrc-internal-manuals/inheritance-tax- manual/ihtm45003. Guidance will be updated before the changes are implemented in April 2027. Charity Lump Sum Death Benefits can be paid free of Income Tax. These lump sums are deliberately limited to money purchase arrangements where the deceased member had no dependants. These rules are not changing as this ensures that pension funds are used to support dependants where they exist, while allowing schemes to pay out benefits where there is no other beneficiary.

What assessment her department has made of the potential benefits of allowing direct gifting of pensions funds to charity during a pension holder’s lifetime, in the content of the recommendations in the Final report of the Social Impact Investment Advisory Group.

This is a complex area of pensions tax policy, and any reform would require detailed assessment of its implications for the pension tax system, its administration, consumer protection, and long-term retirement outcomes. The Treasury regularly engages with departments, including HMRC, to ensure complete assessments are made. While no decisions have been taken at this stage, we will continue to keep these recommendations under review. At present however, members can complete an "expression of wish" or nomination form to indicate their preferred beneficiaries for death benefits. While trustees typically follow these wishes, they are not legally bound to do so. This flexibility allows them to consider other evidence, such as family circumstances at the time of death or wishes expressed in a will.

In relation to changes to bring pensions pots into estates for Inheritance Tax purposes, whether the letter of wishes provided by a pension beneficiary or a will are intended to take precedence in the event that they differ.

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 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. The government has taken steps to ensure that these changes strike a fair balance between beneficiaries of a deceased person’s pension benefits and beneficiaries of their wider estate. At Budget 2025, the government announced changes to help ensure that benefits payable from the deceased’s wider estate are not delayed unnecessarily if inheritance tax is also due on pension benefits. Personal representatives will be able to fund any inheritance tax attributable to the pension by directing pension scheme administrators to withhold 50% of taxable benefits for up to 15 months from the date of death. Personal representatives can then continue to distribute assets from the wider estate as normal. To ensure that the process of calculating, reporting and paying inheritance tax does not take longer than necessary, the government will introduce regulations setting out deadlines for the parties involved to exchange information. Most UK pensions schemes are discretionary, which means that the pension scheme trustees or manager have the final say on how death benefits are paid. They must exercise this power reasonably and in accordance with the scheme’s rules. Members can complete an "expression of wish" or nomination form to indicate their preferred beneficiaries for death benefits. While trustees typically follow these wishes, they are not legally bound to do so. This flexibility allows them to consider other evidence, such as family circumstances at the time of death or wishes expressed in a will.

What steps her Department is taking to ensure that the inclusion of unused pension funds in estates for Inheritance Tax purposes will not increase the time taken to process legacies to charities and families.

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 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. The government has taken steps to ensure that these changes strike a fair balance between beneficiaries of a deceased person’s pension benefits and beneficiaries of their wider estate. At Budget 2025, the government announced changes to help ensure that benefits payable from the deceased’s wider estate are not delayed unnecessarily if inheritance tax is also due on pension benefits. Personal representatives will be able to fund any inheritance tax attributable to the pension by directing pension scheme administrators to withhold 50% of taxable benefits for up to 15 months from the date of death. Personal representatives can then continue to distribute assets from the wider estate as normal. To ensure that the process of calculating, reporting and paying inheritance tax does not take longer than necessary, the government will introduce regulations setting out deadlines for the parties involved to exchange information. Most UK pensions schemes are discretionary, which means that the pension scheme trustees or manager have the final say on how death benefits are paid. They must exercise this power reasonably and in accordance with the scheme’s rules. Members can complete an "expression of wish" or nomination form to indicate their preferred beneficiaries for death benefits. While trustees typically follow these wishes, they are not legally bound to do so. This flexibility allows them to consider other evidence, such as family circumstances at the time of death or wishes expressed in a will.