It is likely that going through probate will be a challenging process, yet this could become trickier with calls for the introduction of Inheritance Tax (IHT) on defined contribution pension pots.  

What are pension pots? 

A pension pot is a term used to describe the total amount of money saved into a defined contribution pension scheme.  

Defined contribution pensions are based on the contributions made by the individual and their employer, plus any investment growth.  

At retirement, individuals can choose how to use their pension pot, such as taking a lump sum or drawing down an income. 

Pension pots and Inheritance Tax 

Currently, defined contribution pension pots are not subject to IHT.  

If the pension pot owner dies before the age of 75, the money can usually be withdrawn tax-free. 

However, there are some exemptions to this. Tax will need to be paid 

If the owner dies after turning 75, Income Tax is paid on any sums withdrawn, however no IHT is paid on this at present.  

Speaking to The Telegraph, David Sturrock, an economist at the Institute for Fiscal Studies (IFS), has suggested that attaching IHT to pension pots could raise between £1 billion and £2 billion per year by the end of the decade.  

What this means for you and your estate planning 

If pension pots become subject to IHT, it could have several implications for your estate planning and the probate process.  

The inclusion of pension pots in your taxable estate will require accurate valuations and could delay the probate process. 

With this in mind, it will be more important than ever to make sure your estate documentation is thorough and up to date. 

Advice on preparing for potential changes 

Good preparation for a potential inclusion of pension pots to the probate process includes reviewing and updating your estate planning documents, including your Will, to ensure they reflect your wishes accurately. 

While no official action has been taken on including IHT to pension pots, it is something to be mindful of in the coming weeks and months.  

The probate services we offer ensure that the often-complex Inheritance Tax issues that are linked to probate are dealt with.  

We can assist with a wide range of financial matters in the probate process, including preparing and submitting Inheritance Tax return applications, and reviewing Wills to make sure they are tax efficient.  

Our experienced team of solicitors can help guide you through the probate process and assist with any potential changes that may come with the introduction of IHT to pension pots. Please contact us today.