STEP urges UK government to reform inheritance tax on pensions

The global estate planning body STEP has called on the UK government to amend proposed inheritance tax (IHT) reforms regarding pension funds. The organization argues that the changes, set to include unused pension funds and death benefits in the IHT scope from April 2027, contain practical flaws that could create a “catch-22” for bereaved families.

A survey of 115 practitioners conducted by STEP indicates that the upcoming reforms are already influencing financial behavior. Approximately 83% of respondents reported that clients are withdrawing pension funds earlier than originally planned, while 75% noted an increase in lifetime gifting. Additionally, 66% of practitioners observed clients revising wills or trusts, and 50% reported changes to pension beneficiaries.

STEP warned that the current plans may discourage pension contributions, with 60% of practitioners seeing clients move funds into alternatives like ISA accounts. The organization has submitted a letter to the Treasury seeking greater clarity and fairness to prevent difficulties for personal representatives and beneficiaries during the probate process.