The key new details in the Bill are around:
Narrowing the exemption for death in service benefits
New notice so personal representatives have the power to block trustees and pension providers from paying more than half of the death benefits if they believe inheritance tax is due
The threshold for direct payment from trustees and providers to HMRC has reduced materially
Commenting on this seemingly now final draft of the legislation, Alasdair Mayes, LCP Partner, said: “Today reveals yet another twist in the journey of applying IHT to pensions and death benefits, demonstrating how big a challenge HMRC have to develop a tax regime that will work.
“HMRC appear to have sought to narrow the exemption for death-in-service benefits, stating that benefits that would be payable “in any form” if the death were not in service are not exempt. Those hoping for a wide exemption will be disappointed.
“Details of a new “withholding notice” announced in the Budget are provided, stating that the personal representatives (those administering the deceased’s estate) will have the power to block trustees and pension providers from distributing more than 50% of the death benefits for up to 15 months if they know or have reason to believe IHT may be due. This could cause material delays in the payment of benefits, hardship for beneficiaries and increased costs. To my mind, 6 months would be more appropriate.
“There are also changes to the direct “payment notice” announced in July. Both the personal representative and pension beneficiary will have the power to direct the trustees and/or pension providers to pay any IHT directly to HMRC. The threshold at which they can issue this notice is to reduce from £4,000 of tax to £1,000, making this mechanism available by right in more cases. However, the option for trustees and providers to make the mechanism available on a voluntary basis for smaller amounts of tax appears to have been ditched. Pension administrators will be pleased that the deadline to pay the tax on receipt of a notice is being extended from 21 days to 35.
“Whilst HMRC have clearly been working hard, the fundamental issues remain. Bringing pensions into the scope of IHT will make the job of those administering estates much harder, and the most likely result is delays in the distribution of both pension benefits and other estate assets. It’s also much more likely that tax penalties will be triggered.”
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