Inheritance Tax modification welcome but powers for executors to block payments could cause unnecessary delays

In papers released yesterday evening on the back of the Budget, HMRC have announced changes to how inheritance tax (IHT) will apply to unused pension funds and death benefits from April 2027.

Commenting, Alasdair Mayes, LCP Partner, said: “Modifying how the proposed regime will work, so that those administering the estate can direct a pension scheme to pay any IHT due to HMRC direct will make the process much more efficient. It’s a big improvement from what was announced in July which left the pension scheme stuck in the middle between the executor and all the beneficiaries.

“Limiting the executor’s liabilities if pension benefits are found after the IHT account has been closed will also be welcome news for executors.

“However, in my view, the new ability for an executor to block payment of 50% of pension benefits for up to 15 months where they have reason to believe IHT might be due is excessive. IHT needs to be paid within six months of death. I see no reason for executors to be able to block payments for more than six months.

“If those administering an estate think IHT is due, they should be encouraged to let a pension scheme get on and pay the tax and the residual benefit to the beneficiaries. What’s been announced could result in material delays in pension schemes being able to pay benefits, as well as beneficiaries incurring penalties for late payment of tax.”