The Society of Pension Professionals (SPP) has issued recommendations for amendments to the draft legislation concerning inheritance tax on pensions.
The recommendations aim to align it more closely with the UK Government’s policy intentions and prevent “unintended consequences”.
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At the Autumn Budget 2024, the government announced changes to how unused pension funds and death benefits are treated for inheritance tax purposes, effective from 6 April 2027.
Following a technical consultation, the government proposed that pension scheme administrators handle the reporting and payment of any inheritance tax on pensions, rather than it being the responsibility of personal representatives (PRs).
The change seeks to address potential issues where PRs may lack access to sufficient estate funds to cover the tax, and to avert additional income tax liabilities.
The SPP’s seven recommendations for the draft legislation include clear exclusions for death in service benefits and trivial commutation lump sum benefits from inheritance tax.
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By GlobalDataThey also suggest extending the definition of “employment” to “employment or other service” to ensure no member categories are inadvertently excluded from the exemption.
Furthermore, the SPP proposes adjustments to the time frame for tax payment by scheme administrators and limits on their liability for interest on late payments.
The change is proposed to ensure that certain groups of members who are eligible for inheritance tax exemptions related to death in service benefits are not unintentionally left out.
Furthermore, the SPP requests more precise explanations concerning different parts of the estate legislation and the consequences that certain decisions or failures to act may have.
SPP Legislation Committee chair Shayala McRae said: “Earlier this year the government accepted SPP’s key recommendation that administrators should not be liable for the reporting and payment of inheritance tax on pensions and that this responsibility should lie with Personal Representatives.
“However, publication of this draft legislation shows there are still some issues to iron out to ensure it better delivers the original policy intent and avoids unintended consequences – and the recommendations in our response will help achieve that.”
This response follows the SPP’s feedback on the Financial Conduct Authority’s consultation on decision-making support in the pensions and investment sectors, where it also advocated for enhanced clarity and support measures.
