A tweak to inheritance tax rules on pensions could help ease the administrative burden on personal representatives, says AJ Bell.
From April 2027, unused pensions are due to be included in calculations for inheritance tax.
Earlier proposals allowed only the pension beneficiary to instruct the scheme to pay inheritance tax directly from pension funds, raising concerns that personal representatives might struggle to ensure the bill is settled.
However, Budget documents have revealed that personal representatives can now intervene to ask the pension scheme to retain half the pension fund for up to 15 months and pay the IHT due in certain circumstances.
AJ Bell said the move should ease the pain for personal representatives and make it easier to ensure the inheritance tax bill is settled in full.
Rachel Vahey, head of public policy at AJ Bell, said: “This tweak to the process will give personal representatives a little bit of flexibility. Some would have been worried that only allowing the pension beneficiary to direct the payment of inheritance tax due on the pension would lead some personal representatives on a merry dance trying to reclaim the money if the pension beneficiary withdrew all the funds.
“But although this will give the personal representatives the power to hold back 50% of the pension benefit to pay HMRC the IHT due, it doesn’t get away from the hard cold truth that bringing pensions into the net of IHT is going to lead to some administrative nightmares for those responsible for winding up the affairs of loved ones.”
Main image: luke-chesser-pJadQetzTkI-unsplash
