Legislation – Finance Act 2026

• “section 567B (deduction where inheritance tax is paid in respect of pension death benefit);”.

“567BCases where inheritance tax is paid in respect of pension death benefit

(1)

This section applies if—

(a)

there is an amount of taxable pension income (“amount TPI”) for a tax year for a pension, annuity or other item of pension income,

(b)

amount TPI reflects (to any extent) the payment to a person (“the beneficiary”) of a benefit under a pension scheme on the death of a member of the scheme (“the deceased”),

(c)

the benefit is not an excluded benefit, and

(d)

at any time (whether before or after the benefit is paid)—

(i)

the beneficiary pays an amount of inheritance tax that is attributable to the value of the deceased’s notional pension property,

(ii)

the deceased’s personal representatives pay an amount of inheritance tax that is so attributable and pass on the burden of that payment to the beneficiary, or

(iii)

the scheme administrator pays (under section 226B of IHTA 1984) an amount of inheritance tax that is so attributable, and the payment meets the condition in subsection (2).

(2)

A payment of an amount of inheritance tax meets the condition in this subsection if (and so far as)—

(a)

in consequence of the payment, the scheme administrator makes an adjustment (under section 226B(5) of IHTA 1984) as a result of which the beneficiary’s entitlement to a benefit other than that mentioned in subsection (1) (“the other benefit”) is reduced, and

(b)

disregarding that reduction, the other benefit would not give rise to taxable pension income for any tax year.

(3)

A deduction is allowed from amount TPI equal to the lesser of—

(a)

the amount of inheritance tax paid as mentioned in subsection (1)(d)(i) or (ii), less so much (if any) of that inheritance tax as has been deducted under this subsection in an earlier tax year, and

(b)

so much of amount TPI as reflects the payment to the beneficiary of the benefit mentioned in subsection (1).

(4)

Where the deceased was under 75 on death, and the benefit mentioned in subsection (1) is a relevant lump sum death benefit, a deduction is allowed from amount TPI equal to the lesser of—

(a)

the amount of inheritance tax paid as mentioned in subsection (1)(d)(iii) so far as it meets the condition in subsection (2), less so much (if any) of that inheritance tax as has been deducted under this subsection in an earlier tax year, and

(b)

so much of amount TPI as reflects the payment to the beneficiary of the benefit mentioned in subsection (1).

(5)

Where a deduction is allowed under both of subsections (3) and (4), the deduction under subsection (4) is to be made first.

(6)

For the purposes of subsection (1)(d) the deceased’s personal representatives “pass on the burden” of a payment of inheritance tax to the beneficiary if—

(a)

the personal representatives pay a sum to the beneficiary out of the deceased’s estate that has been reduced by the amount of inheritance tax, or

(b)

the beneficiary reimburses the personal representatives that amount.

(7)

In this section—

“IHTA 1984” means the Inheritance Tax Act 1984;

“inheritance tax” includes interest on inheritance tax;

“excluded benefit” has the same meaning as in IHTA 1984;

“notional pension property” has the same meaning as in IHTA 1984;

“relevant lump sum death benefit” has the same meaning as in section 637S.”

“579CBRefund of overpaid inheritance tax treated as pension

(1)

This section applies if—

(a)

an amount of inheritance tax that is attributable to the value of notional pension property of a deceased member of a registered pension scheme is paid,

(b)

some or all of the inheritance tax paid—

(i)

is repaid under section 241(1) of that Act to a person, other than a non-qualifying person, who is entitled to receive benefits under the scheme on the deceased’s death (a “beneficiary”), or

(ii)

is repaid under that section to the deceased’s personal representatives and passed on by the personal representatives to a beneficiary,

(c)

in a case in which the payment of inheritance tax mentioned in paragraph (a) was made by the beneficiary or by the deceased’s personal representatives, a deduction is allowed under section 567B in respect of the payment, and

(d)

the deceased was aged 75 or over at the date of their death.

(2)

The relevant amount is treated for the purposes of this Part as though it were a pension paid under the registered pension scheme (and is treated as accruing in the tax year in which it is paid).

(3)

In subsection (2) “the relevant amount” means—

(a)

in a case in which the payment of inheritance tax mentioned in subsection (1)(a) is made by the scheme administrator, the amount of the payment made to the beneficiary mentioned in subsection (1)(b)(i) or (ii);

(b)

in a case in which the payment of inheritance tax mentioned in subsection (1)(a) is made by a beneficiary or by the deceased’s personal representatives, the lesser of—

(i)

the amount of the payment made to the beneficiary mentioned in subsection (1)(b)(i) or (ii), and

(ii)

the deduction allowed under section 567B in respect of the payment of inheritance tax mentioned in subsection (1)(a).

(4)

In this section—

“inheritance tax” includes interest on inheritance tax;

“non-qualifying person” has the same meaning as in section 206 of FA 2004 (special lump sum death benefit charge).”

“(5)

Where any inheritance tax is attributable to the value of the individual’s notional pension property, references in subsection (4) to the amount of a lump sum death benefit are to its IHT-adjusted amount.

(6)

The “IHT-adjusted amount” of a lump sum death benefit paid to a person under a registered pension scheme is (subject to subsection (7)) the amount determined as follows —

• Step 1

  Take the amount of the lump sum death benefit paid to the person.

• Step 2

  Add the amount (if any) by which the person’s entitlement to the lump sum death benefit was reduced in consequence of an adjustment under section 226B(5) of IHTA 1984.

• Step 3

  Deduct the amount (if any) of inheritance tax—

  1. (a)

     that is attributable to the value of the individual’s notional pension property in relation to the scheme, and

  2. (b)

     for which the person—

     1. (i)

        is, or at any time was, liable under section 200(1)(c) of IHTA 1984, or

     2. (ii)

        would at any time have been liable under that provision if the tax had not previously been paid by another person.

  If the result is a negative amount, the IHT-adjusted amount of the lump sum death benefit is nil.

(7)

Where more than one lump sum death benefit is paid to the person under the scheme, the amount to be deducted under Step 3 is the following proportion of the amount of inheritance tax identified in that Step—

$C/D$

where—

“C” is the amount resulting from Step 2;

“D” is the aggregate of the amounts resulting from Step 2 in respect of each lump sum death benefit paid to the person under the scheme.

(8)

In this section—

(a)

“IHTA 1984” means the Inheritance Tax Act 1984;

(b)

“notional pension property” has the same meaning as in IHTA 1984.”

“(ea)

payments of inheritance tax under section 226B of the Inheritance Tax Act 1984 (direct payment of tax by scheme administrator),”.

“206APartial repayment of section 206 charge where IHT paid by recipient of benefit

(1)

This section applies where—

(a)

a registered pension scheme pays a lump sum death benefit in respect of a deceased member to a non-qualifying person,

(b)

a liability to the lump sum death benefits charge arises in respect of the lump sum death benefit,

(c)

at any time (whether before or after the payment of the lump sum death benefit)—

(i)

the non-qualifying person pays an amount of inheritance tax that is attributable to the value of the deceased’s notional pension property, or

(ii)

the deceased’s personal representatives pay an amount of inheritance tax that is so attributable and pass on the burden of that payment to the non-qualifying person, and

(d)

the non-qualifying person makes an application under this section for a reduction in the lump sum death benefits charge.

(2)

Section 206 applies in relation to the lump sum death benefit as if the amount of the benefit that was paid to the non-qualifying person were the amount in fact paid, reduced by the amount of inheritance tax paid as mentioned in subsection (1)(c).

(3)

If and to the extent that the amount of the lump sum death benefits charge paid in respect of the lump sum death benefit exceeds the amount of the liability (as recalculated as a result of subsection (2)), the excess must be repaid to the non-qualifying person (and may not be repaid to the scheme administrator).

(4)

An application under this section is of no effect unless it complies with such requirements as to timing, form and content as may be prescribed by the Commissioners.

(5)

For the purposes of subsection (1)(c) the deceased’s personal representatives “pass on the burden” of a payment of inheritance tax to the non-qualifying person if—

(a)

the personal representatives pay a sum to the non-qualifying person out of the deceased’s estate that has been reduced by the amount of inheritance tax, or

(b)

the non-qualifying person reimburses the personal representatives that amount.

(6)

In this section—

“the Commissioners” means the Commissioners for His Majesty’s Revenue and Customs;

“inheritance tax” includes interest on inheritance tax;

“non-qualifying person” has the same meaning as in section 206.

206BSupplementary charge on refund of overpaid IHT

(1)

This section applies where—

(a)

a registered pension scheme pays a lump sum death benefit in respect of a deceased member to a non-qualifying person,

(b)

a liability to the lump sum death benefits charge arises in respect of the lump sum death benefit,

(c)

an amount of inheritance tax that is attributable to the value of notional pension property of the deceased member is paid,

(d)

some or all of the inheritance tax paid as mentioned in paragraph (c) is subsequently—

(i)

repaid under section 241(1) of that Act to the non-qualifying person, or

(ii)

repaid under that section to the deceased’s personal representatives and passed on by the personal representatives to the non-qualifying person, and

(e)

in a case in which the payment mentioned in paragraph (c) was made by the non-qualifying person or by the deceased’s personal representatives, the non-qualifying person has made an application under section 206A in relation to the lump sum death benefit.

(2)

A charge to income tax arises in respect of the relevant amount.

(3)

In subsection (2) “the relevant amount” means—

(a)

in a case in which the payment of inheritance tax mentioned in subsection (1)(c) is made by the scheme administrator, the amount of the payment made to the non-qualifying person mentioned in subsection (1)(d)(i) or (ii);

(b)

in a case in which the payment of inheritance tax mentioned in subsection (1)(c) is made by the non-qualifying person, or by the deceased’s personal representatives, the lesser of—

(i)

the amount of the payment made to the non-qualifying person mentioned in subsection (1)(d)(i) or (ii), and

(ii)

the repayment made under section 206A to the non-qualifying person in relation to the lump sum death benefit.

(4)

The person liable to the charge is the non-qualifying person.

(5)

The rate of the charge is the same as the rate of the special lump sum death benefits charge (see section 206(4)).

(6)

In this section—

“inheritance tax” includes interest on inheritance tax;

“non-qualifying person” has the same meaning as in section 206.”

“(5)

Sections 226A and 226B of the Inheritance Tax Act 1984 (withholding of benefits and payment of inheritance tax by scheme administrator) are treated for the purposes of this section as provision made by this Part.”