22 January 2025
Sacker & Partners LLP (Sackers), the UK’s leading specialist law firm for pensions and retirement savings, today have provided their response on the HMRC’s Technical consultation Inheritance Tax on pensions: liability, reporting and payments.
Claire van Rees, Partner at Sackers commented: ”We are encouraged by HMRC’s desire to engage with the industry to understand the impact of its inheritance tax proposals, which would bring most unused pension funds and lump sum death benefits within scope of inheritance tax. Whilst we appreciate HMRC’s aims of ensuring pensions aren’t used as tax-planning vehicles and creating a fairer tax treatment of inherited wealth, we are concerned that the proposals as they currently stand go further than perhaps intended. In particular, there is a lack of clarity on the intention around death in service life cover.
The proposed timescales will be extremely difficult to meet in practice, given trustees’ duties and the need to follow a proper process when distributing discretionary death benefits. The proposed process relies on the prompt provision of information and, despite the best efforts of those involved, this doesn’t reflect our experience. This could lead to the delay of payments, which could cause distress to the surviving beneficiaries, as well as administrative complexity for schemes and the personal representatives.
We are particularly concerned about how the proposed process would impact small estates where these are much lower than the inheritance tax threshold. We envisage that this will cause delays to payments from schemes and will introduce a disproportionate administrative burden on the member’s estate, at what is already a difficult time for the bereaved.
We believe that HMRC can still achieve its aims by introducing a more straightforward process, in a way that can work for trustees and their administrators, who are already under huge strain and working at capacity. Alternative processes could include a “scheme pays” type approach, where a scheme only becomes liable for inheritance tax when certain conditions are satisfied, or that a scheme pays out death benefit less any potential inheritance tax and then makes any further appropriate payments when the personal representative confirms the amount of inheritance tax payable (if any)”.
Sackers full consultation response – HMRC technical consultation – Inheritance Tax on pensions: liability, reporting and payment |
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