Key changes to pensions tax proposed in the 2024 Budget

On 30 October 2024, as part of her Budget Statement, Chancellor of the Exchequer, Rachel Reeves, announced the intention to bring ‘inherited pensions’ within the Inheritance Tax (IHT) regime from 6 April 2027.

BTPS is a defined benefit (DB) scheme, and we pay a pension for life to your spouse or civil partner if you die, which are not expected to be affected by the tax changes proposed in the Budget.

What may be affected are certain lump sum death benefits. Currently, if you were to die before starting your BTPS pension, or within five years of retiring, a lump sum death benefit may be payable. The government’s intention is for those two specific lump sum death benefits to form part of a deceased member’s estate and be subject to Inheritance Tax from April 2027. This is likely to only affect a small minority of members.

This means we do not expect any BTPS member who has been retired for more than five years to be affected by the proposed changes.

The government is consulting on these changes over the next few weeks but there is no change to the tax payable on members’ death benefits now.

Once the final legislation is in place, we’ll update our website and member communications with more information.

Further information

Read the government’s Consultation Paper, inviting views on the processes required to implement these changes. The consultation will run for 12 weeks between 30 October 2024 and 22 January 2025.

After the consultation, the government will publish a response document and carry out a technical consultation on draft legislation for these changes in 2025.

Expert help and guidance

If you have questions about how these changes might impact you in future, you should speak to a financial adviser. They’ll be able to tell you exactly what the changes could mean for you, based on your personal circumstances. Find out about the expert help available to you on our website at Where to go for financial advice.

This information is a summary based on our understanding of the current law and regulatory practice. It does not constitute financial advice, and you should seek your own independent financial advice before making any decisions in relation to this information. Your BTPS benefits are always subject to the Scheme Rules and relevant legislation. If there’s any difference between the information provided here and the Scheme Rules and legislation, the Scheme Rules and legislation will override the former. Please be aware that the law might change again in the future.