Frequently Asked Questions — Pension IHT and the Flexible Pension Annuity

Yes, it is confirmed law. Finance Act 2026 received Royal Assent on 20 March 2026. The major political parties are not opposing it — the principle that pension funds should provide income in retirement rather than a tax-free inheritance has cross-party support. There is no Parliamentary opportunity to reverse this before April 2027. Treat it as confirmed and act accordingly.

Functionally almost identical during the client's lifetime — both are investment-linked, both pay income via PAYE, both allow flexible withdrawals. The difference is entirely what happens on death.

In drawdown: the residual fund passes as a pension death benefit, subject to IHT from April 2027 and income tax (for over-75s) on every withdrawal by beneficiaries.

In the FPA: the annuity ceases and the residual Cell value passes via the Preference Share — free of income tax and CGT from day one, and free of IHT after 2 years via BPR.

Consumer Duty: advisers must document the distinction and treat the annuity and Preference Share as two separate transactions.

BPR qualification confirmed by Threesixty Services LLP (Luke Tribe, Research Manager). Four conditions under s105(1)(bb) IHTA 1984:

1. Shares not listed on a recognised stock exchange — the Preference Share is unquoted. ✓
2. Company has all characteristics of a body corporate under Gibraltar law. ✓
3. Carries on life assurance business on a commercial basis for profit. ✓
4. Shares held for at least 2 years prior to death. ✓

Over 250 HMRC death claims processed past the 2-year mark. Not one refused. Independent tax opinion from Fusion Partners (~£1,500 + VAT for standard cases).

Even in the historically unprecedented event of BPR failing, the Preference Share still eliminates income tax and CGT on death — an immediate ~45% saving on the pension fund compared to drawdown. For over-75 clients this income tax saving alone is a major benefit regardless of IHT.

Clients can also plan conditionally: "To children if BPR applies; to spouse if not." The spousal exemption acts as a failsafe. The income tax benefit is unconditional either way.

Gibraltar is a UK Overseas Territory with close regulatory ties to both HMRC and the FCA. The structure is in Gibraltar because the UK has no Protected Cell Company legislation — Gibraltar has had it since 2001.

The provider is dual-regulated by the FCA and the Gibraltar Financial Services Commission. All products are 'protected contracts of insurance' under FSCS — 100% protection, no cap.

Gibraltar sovereignty was definitively settled: UK-EU agreement June 2025 confirmed British sovereignty. Draft Treaty Agreement formalised March 2026. And ~20% of UK motor insurance (including Admiral Insurance) is written by the same PCC structure.

Charges are transparent and capped: 2% establishment (max £10,000), 1% AMC (max £1,600 pa), Preference Share £300–£1,200. The provider makes no mortality profit.

For a £500k fund over 2 years: total charges ~£27,300. Saving: beneficiaries receive £472,700 vs £165,000 — saving of £307,700.

Life assurance: ~£7,000–£13,500 pa (before tax grossing-up), does nothing for income tax on death. The FPA eliminates income tax from day one, then IHT via BPR after 2 years. They are not comparable alternatives.

In-specie transfers of existing pension assets are permitted — no need to liquidate an existing portfolio or DIM mandate. Assets transfer into the client's Cell and continue to be managed identically.

Standard assets only: unit trusts, OEICs, ETFs, equities, bonds, gilts and cash. For clients with conventional DIM mandates, this is not a restriction — the mandates continue as-is within the Cell.

Under the April 2027 rules, executors face personal liability for the pension IHT within 6 months of death — before the estate is distributed. For a £500k pension, that is £200,000 of personal liability on the executor, often a child, before they receive anything from the estate.

In blended families with contested estates this creates serious practical and legal risk.

The FPA eliminates this entirely. The Preference Share passes via the will as a simple estate asset — no separate HMRC pension IHT reporting process, no executor personal liability.