The Budget changes how some pension death benefits are taxed and loosens HMRC's definition of terminal illness, according to The Actuary.
Tax-free pension and lump-sum death benefits will no longer become taxable solely because they are paid more than two years after a member's death, the publication reports. The change applies to payments made on or after 28 October 2026, whenever the member died, and will be legislated in Finance Bill 2026-27.
HMRC's terminal illness test will also change. It currently requires medical evidence of a life expectancy of under one year. The Actuary says the new test will be whether death can reasonably be expected within 12 months.
These measures sit alongside the Pension Tax Allowance, which The Actuary says is expected to benefit around 290,000 pensioners, who will pay no income tax. It reports that the full state pension rises by 3.9% next April to £13,036.40 a year. That is £466.40 above the £12,570 standard personal allowance.
The detail on death benefits and terminal illness has not been independently checked against the Budget documents.