Former pensions minister and LCP partner, Steve Webb, is calling for major changes to plans for pensions to be brought into the scope of inheritance tax from April 2027.
Ahead of the House of Lords oral evidence session later today, Webb alongside LCP head of pensions and tax, Alasdair Mayes, argued the need for a range of practical changes to make the plans fair and effective.
The pair said it seemed “unfair” to include ‘death in deferment’ lump sums from DB schemes and small funeral grants from pension schemes within the scope, given that neither of these systems are being used to avoid IHT.
They also noted with these plans, personal representatives will be liable for ensuring that IHT is paid but may have no control over some of the funds.
Therefore, one option would be for the personal representative to be responsible only for IHT due on the rest of the estate.
Or for the personal representative to have the power to require the pension scheme or provider to deduct IHT before paying out.
Delays and deadlines
Webb and Mayes warned the new process could lead to a delay in money being released to those in need, including a widow or widower exempt from IHT.
They suggested it would be better if such payouts could be released before IHT matters were resolved.
This is already a difficult time for families, and they will now face a ticking clock of six months before interest and penalties could apply if IHT is not sorted out
Under the proposed rules personal representatives have to ensure IHT is paid within six months with beneficiaries facing the effect of interest and penalties if this is not done.
The pair noted personal representatives may be penalised for matters beyond their control, such as delays in obtaining information about fund values and about other beneficiaries.
Therefore, they felt a longer deadline would be ideal or at least waiving the penalties and interest in such cases.
Webb said: “This is already a difficult time for families, and they will now face a ticking clock of six months before interest and penalties could apply if IHT is not sorted out.
“This deadline needs to be extended, otherwise people will be punished for something which may well not be their fault. Personal representatives should also not be held accountable for the IHT on pensions paid out to another beneficiary, as this is money they have no access to.”
Sharing data
Given the time pressure, LCP feels more needs to be done to ensure pension schemes become aware of the death of a member as soon as possible.
The firm suggested letting the government’s ‘Tell us Once’ service share information with pension schemes and providers, saving the bereaved family from having to do this.
While also requiring registrars to share data about deaths more quickly and frequently than the currently monthly data feed.
Webb also highlighted how probate can only be sought once all IHT due has been assessed and paid, and that probate itself can sometimes take months to be awarded.
To streamline this he suggested to allow the personal representative to apply for probate at once, and for the application to processed in parallel with sorting out the IHT.
Bereaved families may have difficulties in tracking down any pensions, so once the new pensions dashboard is up and running it should be made available to bereaved families, and the data displayed should be expanded to include unspent pension balances, LCP suggests.
alina.khan@ft.com
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