Inheritance tax (IHT) reforms risk creating a regime that penalises pensions unfairly compared to other assets, AJ Bell has warned.<\/p>\n
The financial services firm said that HMRC was planning on operating a \u2018two-tier\u2019 IHT system, where certain IHT reliefs available under the main estate will not apply to pensions.<\/p>\n
These reliefs included loss on sale relief, business relief and agricultural relief, and the ability to pay IHT on property in instalments.<\/p>\n
HMRC has said that as the member is not treated as owning the pension assets, reliefs were not applicable.<\/p>\n
However, AJ Bell argued that it could be interpreted that HMRC was already treating pensions as belonging to the member when bringing them into the IHT estate.<\/p>\n
From April 2027, most unused pension funds and death benefits will be included within an individual\u2019s estate for IHT purposes.<\/p>\n
AJ Bell stated that pensions will already be penalised from being taxed once under IHT as estate capital, and a second time as income for the beneficiary if the person dies aged 75 or over.<\/p>\n
\u201cUnder the plans, inheritance could be subject to a two-tier tax system, where important reliefs available on other assets are denied on assets sitting inside a pension,\u201d commented AJ Bell head of public policy, Rachel Vahey. <\/p>\n
\u201cThat means estates could face higher tax bills, extra late payment interest and less flexibility at exactly the point families are already dealing with bereavement.<\/p>\n
\u201cHMRC\u2019s justification is hard to square. It says these reliefs should not apply because the pension saver does not own the pension assets, yet those same assets are being pulled into the saver\u2019s estate for IHT purposes.<\/p>\n
\u201cThe result is an unfair and unnecessarily complex system. Families could lose access to loss on sale relief, business property and agricultural property relief and the option to pay IHT in instalments on certain assets, solely because they are held within a pension.<\/p>\n
\u201cWorse still, pensions may be taxed twice: first as estate capital for IHT and then, where the pension saver dies aged 75 or over, as income in the hands of the beneficiary.<\/p>\n
\u201cIdeally, government would go back to the drawing board and look at simpler options for taxing pensions on death. If it won\u2019t do that then, at the very least, it should treat pensions the same as other assets under the IHT system.\u201d<\/p>\n
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