HMRC Under Pressure to Update Pension Inheritance Tax Rules
HMRC has been prompted to rethink the corridor of its draft inheritance tax ( IHT) rules for pensions before new regulations come into effect.
The Society of Pension Professionals( SPP) has raised concerns that the current proposals could produce unintended complications for pension scheme members.
They’re calling for adaptations to ensure the rules reflect the original policy pretensions. “There are still some issues to iron out,” the SPP warned.
One key recommendation is to replace the term “employment” with “employment or other service.”
This would stop certain members from being accidentally excluded from the IHT exemption applied to death-in-service benefits.
Another point of concern is the tight deadline for paying taxes. Under the draft legislation, scheme administrators must pay IHT within three weeks of receiving notice from the beneficiary.
The SPP argues this is too short and suggests extending it to 30 business days to give administrators enough time.
Shayala McRae, chair of the SPP legislation committee, stressed the need for careful revision: “Earlier this year, the government accepted SPP’s key recommendation that administrators should not be liable for the reporting and payment of inheritance tax on pensions and that this responsibility should lie with personal representatives.
However, publication of this draft legislation shows there are still some issues to iron out to ensure it better delivers the original policy intent and avoids unintended consequences, and the recommendations in our response will help achieve that.”
Legal experts have also flagged gaps in the draft rules. Claire van Rees, partner at Sackers, explained: “The draft legislation addresses many practical concerns raised by the pensions industry around workability of the initial proposals, albeit by pushing much of the burden onto personal representatives.
However, some issues remain, particularly around clarifying exactly when death in service lump sums will be excluded from the scope of Inheritance Tax, and in some practical implementation areas.
The overall policy also extends differences in treatment between unmarried couples and those married or in a civil partnership, particularly as DC pensions grow in importance.
Once the legislation is finalised, trustees and pension scheme administrators will need to take stock of how to implement new processes, and what they should be communicating to members.”
These recommendations come as part of ongoing sweeps to make the heritage duty system clearer and fairer, particularly as pensions play an important part in withdrawal planning.
The SPP hopes that the suggested changes will help reduce confusion and unanticipated duty arrears when the new rules are introduced.
Recent discussions on an inheritance tax overhaul also suggest potential changes that could directly affect pension planning in the coming months.
For more information on inheritance tax rules and guidance, visit HMRC’s official website.
