Trade association PIMFA has warned that bring unused pension funds and death benefits into the scope of inheritance tax is "unworkable and risk creating serious problems for bereaved families".
Under the proposals, personal representatives (PRs) - executors and administrators of a deceased person’s estate - must report and pay IHT within six months of death or risk interest charges. However, pension schemes have up to two years to determine who should receive discretionary pension benefits.
PIMFA says this means PRs could be forced to either file potentially inaccurate IHT accounts, risking errors and overpayments, or delay filing until pension decisions are made and risk paying interest charges on money they may not even owe.
Platform firms within PIMFA say this makes the changes unworkable, as they will create confusion for PRs, many of whom will have little experience and no professional support, and leave families paying interest on tax bills simply because the pension beneficiaries have not been confirmed.
While the timing aspect is the most pressing issue, platform firms within PIMFA have also flagged a number of other concerns about HMRC’s IHT proposals. These include:
• Small estates - The draft legislation could push more estates into full IHT reporting unnecessarily if they have to report before the beneficiaries have been confirmed.
• Valuations - The draft rules require pensions to be valued as of the date of death; however, providers may not learn of a death until sometime afterwards, potentially months or even years later.
• Liquid assets - Pensions holding complex or illiquid assets, such as property, could be complicated and costly to value at a specific date in the past.
• Payment of tax - The proposed requirement for schemes to settle IHT within three weeks on behalf of beneficiaries is unrealistic, especially where pensions include illiquid or complex assets or the pension is paid as a dependant’s drawdown.
• Refunds - Too much tax upfront may be paid if an estate is later revalued, and it will be difficult for HMRC to issue refunds if the executors and/or pension providers are no longer in contact with beneficiaries.
• Vulnerable customers - Expecting non-professional PRs, often grieving family members, to calculate, report and pay IHT within compressed timescales – even without the clash of deadlines highlighted above - risks distress, errors and delays.
Julia Sage-Bell, senior policy adviser at PIMFA, said: “Under the current proposals, personal representatives, many of whom will be vulnerable, bereaved families face a no-win situation. They either have to report the pension fund without knowing who the beneficiaries are, potentially submitting an IHT account unnecessarily. Or, if they wait to get all the details right, they risk delaying probate and paying interest on taxes that might not even be owed.
“Either way, the process is complicated, stressful, and costly for families at a time when many are already dealing with grief.
“While we understand the Government’s aim of addressing the use of pensions for intergenerational wealth transfer, we are urging HMRC to revisit the administrative framework. In its current form, this legislation risks creating unnecessary burdens, delays, and unfair costs without delivering the intended policy benefits.”
