UK Inheritance Tax Reform: What It Means for Jersey Residents with UK Pensions

From April 2027, the UK will introduce a landmark change to its inheritance tax (IHT) regime: pension funds will no longer be exempt from IHT.

For Jersey tax residents and Jersey-domiciled individuals with UK pension assets, this development demands immediate attention and strategic planning.

What’s Changing?

Historically, UK pensions—particularly undrawn funds—have been viewed as a tax-efficient vehicle for intergenerational wealth transfer. Under the 2015 pension freedoms, such funds typically fell outside the scope of UK IHT. That will change in 2027. 

Pension funds, even those where trustees retain discretion over death benefits, will now be treated like other estate assets for IHT purposes.

The government’s decisions to bring unspent pension pots into the scope of IHT and cut agricultural and business property reliefs will likely drag more estates into the tax net, this could trigger further HMRC scrutiny of families’ inheritance tax filings.

Why Jersey Residents Should Care

Under domestic UK tax law, the location of an asset is a key factor in determining its exposure to inheritance tax (IHT), particularly for individuals classified as having long-term non-resident (LTNR) status in the UK (previously referred to as the non-domiciled regime prior to April 2025).

Assets held by LTNRs that are situated outside the UK are generally treated as excluded property and are not subject to IHT. In contrast, assets located within the UK—known as UK situs assets—may fall within the scope of IHT upon a chargeable event.

The term “situs” refers to the legal location of an asset.

Although Jersey does not impose inheritance tax, Jersey residents with UK pension assets may still be exposed to UK IHT. This is particularly relevant for individuals who:

• Hold UK-registered pension schemes
• Have UK situs assets within their pensions (e.g., UK property or shares)

Key Implications

Following a review of the current draft legislation, several additional implications have emerged that Jersey residents with UK pension assets should be aware of. These changes could significantly impact estate administration and tax exposure:

• Executor Responsibility: Executors, not pension administrators, will be responsible for reporting and paying IHT on pension death benefits. This creates administrative complexity, especially for cross-border estates.
• Liquidity Pressures: Executors may face cash flow challenges, particularly if they must settle tax liabilities before probate or without direct access to pension funds.
• Loss of Reliefs: Pensions will not benefit from business property or agricultural property relief—even if the underlying assets would qualify if held directly.
• Double Taxation Risk: If pension withdrawals are used to pay IHT, beneficiaries may face both income tax and IHT on the same funds.

Strategic Considerations for Jersey Tax Resident Individuals

1. Review Pension Nominations: Ensure your nomination forms are up to date and aligned with your estate planning goals. Consider whether nominating executors rather than individuals may simplify administration.
2. Assess Liquidity Needs: Executors may need access to liquid assets to settle IHT. Life insurance held in trust or designated cash reserves could be essential.
3. Evaluate IHT Exposure: If you have ongoing ties to the UK, it’s important to assess your long-term residence status under the updated rules. While breaking UK domicile may still reduce exposure to UK inheritance tax, the new Long-Term Resident regime introduces additional complexity. Professional advice is essential to navigate these changes and determine your position accurately.
4. Consider Lifetime Planning: With pensions set to lose their inheritance tax (IHT) shelter from April 2027, it may be more tax-efficient to begin drawing down pension funds during your lifetime—particularly if your income tax rate is lower than the effective IHT rate. Additionally, individuals should consider whether transferring UK pension assets to a Jersey Qualifying Recognised Overseas Pension Scheme (QROPS) could offer greater control, potential tax advantages, and alignment with broader estate planning goals. As always, such decisions should be made with specialist cross-border advice.
5. Coordinate with Advisers: Cross-border estates require coordinated planning. Work with tax and legal professionals to ensure compliance and efficiency under the new rules.

Act Now, Not Later

While the changes come into effect in April 2027, taking early action is crucial. Residents of Jersey with UK pensions and other UK situs assets should start reviewing their estate plans, consulting with advisers, and preparing executors for the new responsibilities.

This reform marks a fundamental shift in the UK’s approach to pension taxation.

For Jersey individuals, it underscores the importance of proactive, cross-jurisdictional estate planning to preserve wealth and avoid unnecessary tax exposure.

How Rosscot Can Help

Rosscot offers deep expertise in supporting both individuals already living in Jersey and those planning to relocate to the Islands. We provide tailored advice across personal and business matters, helping clients navigate the complexities of cross-border tax, structuring, and financial planning. Early engagement and proactive planning are key to ensuring a smooth transition and addressing any tax implications effectively.

Whether you’re settling into life in Jersey, reviewing your current arrangements, or just beginning to explore a move, our team is here to guide you with clarity and confidence.”