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Concerns have been raised that the government's plans to bring pensions into the scope of inheritance tax could cause a "bureaucratic nightmare for grieving families".
The Chancellor, Rachel Reeves, announced plans to remove the concession for pension pots to be passed on to anyone free of inheritance tax (IHT) as part of her autumn Budget.
The government's estimates suggested that around 49,000 estates per year that include pensions will face an inheritance tax bill, including 10,500 who would not have faced IHT at all if pensions were not included and 38,500 who were already in the IHT net but will now face an additional bill.
As part of the new process, pension scheme administrators will become liable for reporting and paying any IHT due.
Steve Webb, a partner with consultancy LCP, warned that new rules on pensions and IHT could prompt a "bureaucratic nightmare for grieving families", making the whole process "much more convoluted".
In particular, he raised concerns over the fact that bereaved people would be required to identify all of the relevant pensions of the deceased, to contact and obtain information from them, to use that information to get IHT information using an HMRC tool, to go back to the schemes and then wait up to six months for payment.
In addition to this, he also pointed out that bereaved families who may not know the current value of the deceased person’s pensions or death benefits will have to obtain this information simply to check if IHT is due or not.
Webb warned that this could lead to delays, including delays in releasing death-in-service lump sums, which themselves could be much reduced if subject to tax of up to 40 per cent.
He stated: "Including pensions within the scope of IHT will add greatly to the burden which families face.
“The whole thing could turn into a bureaucratic nightmare for grieving families. If this proposal is to go ahead, the government will need to come up with a much more streamlined process than is currently proposed.”
If you're concerned about Inheritance Tax and how this may implement your retirement and estate planning, we'd encourage you to get in touch. Our team of Chartered Financial Planners can help you work out what the best solutions are for your specific scenario.
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