The Society of Pension Professionals (SPP) has responded by highlighting the many problems that will be created by these proposals. This includes the potential for significant delays in paying out benefits, causing unnecessary financial hardship to some beneficiaries. The proposals are also unclear as to what is (and isn’t) in scope, impose unrealistic and impractical timescales, and apply interest charges or penalties on PSAs for delays over which they have little or no control.
As a result, the SPP has suggested two viable alternatives that will be, “less costly, quicker, and ultimately more effective.” The first alternative is to continue using existing payment methods, and to leave the calculation and payment of IHT to the Personal Representative (PR) and HMRC.
The second alternative would be for the benefit to be taxed in full at 40% (or whatever the main rate of taxation is) and paid promptly by the PSA in the minority of cases where a pension is subject to IHT. This would not apply in most cases as there will be no liability. For example, where the spouse is the beneficiary. The impact could be further moderated by introducing a de minimis limit, and by an option for the PR to voluntarily certify to the PSA that no IHT is payable. As the SPP highlight, this means that “HMRC gets its tax quicker, and beneficiaries get their money quicker – a genuine win-win solution.”
Steve Hitchiner, Chair of the SPP Tax Group, said: “The decision to impose Inheritance Tax on unused pension pots from April 2027 is perhaps unsurprising, particularly given the Government’s estimated savings of around £1.5bn annually by 2030. To raise this revenue, issues relating to the reporting and payment of this tax are vitally important. The current proposals will result in numerous problems and challenges which could be largely avoided by adopting either of the SPPs recommended alternatives.”
The SPP consultation response can be read in full here
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