When it comes to badly thought-out rule changes, charging inheritance tax on pensions really tops them all.

The change, announced by Rachel Reeves in the 2024 autumn budget, means that from April 2027 pension pots will no longer be exempt from inheritance tax and could be liable for a charge of 40 per cent.

In principle, the rule change makes sense. The primary purpose of pensions is to provide an income in retirement, not a way to pass wealth on to younger family members free of tax. But the complexities of this change are many — and so are the pitfalls.

Gone are the days when you had a job for life. Today, each new employer offers their own pension scheme and the chances are that many of us will leave behind a number of pots of different sizes and with different rules.

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Tracking them all down will be a feat in itself. Working out how much inheritance tax, if any, is due and which pension pot the charge will be deducted from will be a very difficult task. It makes me sweat just thinking about it.

Who will have to do all this hard labour? It definitely won’t be HM Revenue & Customs. Nor will it be your pension firm.

Instead it will be down to the unlucky person who has been appointed as your personal representative. If you left a will, the personal rep will be the executor named in that will. If there’s no will, it will be the estate administrator, who is appointed by a court.

Either way, this is likely to be a family member who has been left to deal with this task at a time when they are grieving and at their most vulnerable.

It will be the responsibility of this poor rep to pay any inheritance tax bill due — and this could be tricky for many reasons. The beneficiaries could get their payout before any inheritance tax bill has been settled and might spend it all, leaving nothing to pay the charge, for example.

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This won’t be a problem if the personal rep is one of the beneficiaries, but they don’t have to be. For many estates the beneficiaries of the estate — who inherit any property and other assets — could be different from the beneficiaries of the various pension pots, as could the personal rep.

This was highlighted at the third reading of the Finance (No. 2) Bill yesterday when several amendments to the legislation for inheritance tax on pensions were debated.

Lawyers are warning that this rule, if unchanged, could lead to an increase in post-death disputes and cause significant delays, all of which will come at a huge cost to families. Jonathan Jacobs, a partner at the law firm Morr & Co LLP, said: “They may require expensive court applications and families will need various professionals to advise who will, of course, charge their associated fees.”

One of the changes mooted yesterday was to let personal representatives pause the distribution of inherited pensions and put a hold on up to half of the pension assets for up to 15 months to cover any potential tax bill. While this is already allowed if the reps have been appointed by the will, there is no such protection if there is no will or if the appointed rep is unwilling to take on the role.

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Rachel Vahey from the investment platform AJ Bell said: “Without this legislative tweak, those who are looking to take on the role of personal representatives may find that by the time the battle with paperwork is won and the official appointment comes through, there is no money left in the pension to settle the inheritance tax bill after it has been paid out to family or friends.”

Inheritance on pensions has triggered a middle-class panic as tens of thousands more families are likely to be dragged into the tax net. And the complexities of the rule change will only make things worse unless they are made clearer and more straightforward.