Inheritance Tax and pensions: HMRC and HMT listening to industry will “provide welcome consistency across public and private sector”
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On 30 October 2024, Rachel Reeves announced in her first Budget that IHT would apply to unused pension assets from April 2027. HMRC’s consultation on the technical detail of implementation went much further, saying IHT would apply to many death benefits too.
Many in the pension industry criticised the proposals for placing unrealistic deadlines on pension schemes to decide who death benefits are paid to and too little time to pay tax to HMRC without triggering interest and penalties. There were also concerns around requirements to share sensitive personal data too widely.
Today HMRC’s consultation response has stated all death in service benefits from registered pension schemes will be out of scope of IHT and the mechanism for collecting IHT on other pension benefits will be changed.
Commenting, Alasdair Mayes, LCP Partner said:
“It’s great to see that HMT and HMRC have listened to feedback and decided that lump sum death in service benefits are not to be brought into scope of the new IHT regime after all. These are not “unused pension assets” but a vital benefit to young families at a time of need and loss of a bread winner. Providing consistency across the public and private sector will I am sure be welcomed.”
“The technical changes to the way in which IHT will be collected on pension benefits are welcome by pension scheme administrators but will place a significant additional burden on personal representatives, many of whom are not experts in financial matters at a time when they may well be vulnerable having recently been bereaved.”
