Time is running out for HMRC to tell the pensions industry how next April’s Inheritance Tax changes will work, according to pension consultants LCP.
HMRC said today that final guidance for the new tax regime will be published next spring.
But that’s just a few weeks before the new system comes in, pointed out Tim Camfield, principal at LCP. He warned: “It could leave schemes struggling to update member communications and information ahead of the go-live date.”
HMRC has published a technical note today giving some clarifications on how IHT on pensions will operate on deaths from 6 April 2027. But the tax authority said it plans to provide further information at intervals between now and next April, with final guidance only expected in spring 2027.
Mr Camfield said: “We have concerns about the impact of further guidance being issued in spring 2027, just weeks before actual cases begin to arise. HMRC’s consultative approach is welcome, but time is running out for HMRC to give schemes the detailed information which they will need to implement a new system which starts in less than a year’s time.”
The key points of the new system, on which some further details have been provided today, include:
- From April 2027, unspent DC pension pots and certain other pensions will be within scope of IHT. A Personal Representative (PR) will need to track down all of a deceased person’s pensions and contact each pension scheme or provider. The scheme will need to provide information on the value of pension rights and who is due to receive the money. Transfers to spouses and civil partners who are long-term UK residents will remain exempt from IHT.
- The PR will combine this information with information about the rest of the estate and work out what IHT is due and notify each pension scheme of their share of the IHT bill. The PR will be able to instruct pension schemes to withhold up to 50% of the pension until the IHT has been settled, or until the month-end after 15 months has passed, if sooner. Today’s bulletin says that this power will often be used quite early in the process, but should only be used where the PR has "good reason" to think that IHT will eventually be due.
The further details published in today’s bulletin include: death in service benefits are excluded, as expected. Nevertheless, there will be a requirement to report these benefits; there will be an onus on employers/schemes to ascertain if those on long-term sickness and other absences qualify; new clarifications have been provided on more complex death in service benefits; if there’s no will, someone who expects to be the PR may, with evidence, issue a withholding notice; the PR can only issue a notice if they believe IHT may be due on the estate including the pensions, “based on the knowledge of the deceased’s estate and circumstances.”
Mr Camfield said: “There is helpful clarity here for bereaved families that half of the pension should generally be able to be paid out quickly. Pensions have often been a vital source of income for families following a death as they are outside the estate so can be accessed quickly. The estate – and from April 2027 the other half of the pension too – can often be in limbo for far too long for beneficiaries.”