Question 1

What does Finance Act 2026 do to pension funds?

Accepted Answer

Finance Act 2026, which received Royal Assent on 20 March 2026, brings unused DC pension funds into the IHT estate from April 2027. For clients over 75, both IHT at 40% and income tax at up to 45% apply simultaneously to pension death benefits. The combined effective rate can reach 67%, leaving beneficiaries with as little as 33p in every pound.

Question 2

What is the Flexible Pension Annuity and how does it eliminate pension IHT?

Accepted Answer

The Flexible Pension Annuity (FPA) is a unit-linked lifetime pension annuity that works like drawdown but includes a Preference Share in a Gibraltar Protected Cell Company. On death, the residual fund passes via the Preference Share free of income tax and CGT from day one. After a 2-year holding period, the Preference Share qualifies for 100% Business Property Relief under s105(1)(bb) IHTA 1984, eliminating IHT. The result is zero income tax and zero IHT on the pension fund.

Question 3

Does Business Property Relief on the Flexible Pension Annuity actually work?

Accepted Answer

Yes. Over 250 HMRC death claims have been processed past the 2-year qualifying period since the product launched in 2001. Not one BPR claim has been refused. The qualifying conditions under s105(1)(bb) IHTA 1984 have been independently confirmed by Threesixty Services LLP. However, BPR is not guaranteed — past success does not guarantee future outcomes and qualifying conditions must be met at the date of death.

Question 4

What is the executor liability risk under Finance Act 2026?

Accepted Answer

Under Finance Act 2026, executors become personally liable for pension IHT within 6 months of death — before the estate is distributed. For a £600,000 pension fund, this means £240,000 of personal IHT liability falls on the executor, often a child, before they receive anything from the estate. The FPA eliminates this by converting the pension into a Preference Share that passes through the will as a standard estate asset with no separate HMRC pension IHT reporting obligation.

Question 5

How much does the Flexible Pension Annuity cost?

Accepted Answer

The FPA charges are: 2% establishment fee (capped at £10,000), 1% annual management charge (capped at £1,600 per year), and a one-off Preference Share cost of £300–£1,200. On a £500,000 fund over 2 years, total charges are approximately £27,300. After all charges, beneficiaries receive approximately £472,700 versus £165,000 without the FPA — a saving of £307,700.

Question 6

Who is the Flexible Pension Annuity suitable for?

Accepted Answer

The FPA is suitable for clients aged 55+ with crystallised DC pension funds above £100,000 (primary target £500,000+), particularly those over 75 where the income tax saving applies from day one; those with non-spouse beneficiaries facing the full 67% double tax charge from April 2027; clients in blended families needing testamentary certainty over pension proceeds; and clients under 75 who need to start the 2-year BPR qualifying clock before April 2027.

Question 7

Is the Flexible Pension Annuity FSCS protected?

Accepted Answer

Yes. The FPA is a protected contract of insurance under the Financial Services Compensation Scheme (FSCS), providing 100% policyholder protection with no upper limit. The provider is FCA-authorised and dual-regulated by the Gibraltar Financial Services Commission.

Question 8

Why is the Flexible Pension Annuity based in Gibraltar?

Accepted Answer

The FPA uses a Gibraltar Protected Cell Company because the UK has no Protected Cell Company legislation. Gibraltar has had PCC legislation since 2001 and was the first EU territory to adopt it. Gibraltar is a UK Overseas Territory with close regulatory ties to both HMRC and the FCA. Approximately 20% of UK motor insurance (including Admiral) is written by the same PCC structure. UK-EU agreement in June 2025 confirmed British sovereignty over Gibraltar.

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