We welcome the opportunity to respond to the consultation published by the HM Revenue and Customs (HMRC) in relation to the proposed changes to inheritance tax on pensions.
The most significant tax decision relating to pensions taken by the Chancellor at the Budget was to extend inheritance tax to pensions from April 2027.
Quirks of successive legislation have created the situation whereby certain scenarios can lead to pensions being inherited free of inheritance tax.
The PLSA fundamentally believes that pensions should be used to pay retirement income to the individual that has accrued the entitlement, or their partner as their nominated beneficiary. The Government’s overall policy approach of bringing pensions into scope for inheritance tax is pragmatic.
However, it is important that it is done in a way that minimises any detrimental impact on members and beneficiaries, avoids discriminating against certain family units, such as unmarried couples, and minimises the burden on pension schemes and legal personal representatives. As such, we have significant concerns about the proposals set out in the consultation document that accompanied the Budget.
The PLSA proposes an alternative approach. Our proposals remain aligned with the overall policy objective of bringing pensions into scope for inheritance tax purposes. However, they would simplify the way in which inheritance tax on pensions can be paid. This would result in a process which would as far as possible allow for the timely payment of pension lump sums to families, while at the same time alleviating the administrative and financial burden for pension schemes. It also builds upon existing practices and obligations for legal representatives of Estates within the current inheritance tax regime, rather than creating a new layer of regulatory requirements.