Autumn Budget 2024: Pensions subject to Inheritance Tax from April 2027 – but most still won't pay

leosayer

PaulVickerstaff said:

Couldn’t it be said that the decision to charge IHT on existing pension pots is subject to a legal challenge? Surely, those of us who have been encouraged to save for retirement in the belief that the residue of our pension is already ring-fenced from IHT have a case? 

There would need to be a basis in law for bringing a legal challenge.

For example, the government's introduction of VAT on school fees is subject to challenge based on breaches of the European Convention on Human Rights relating to points around discrimination and the right to education.

MeteredOut

PaulVickerstaff said:

Couldn’t it be said that the decision to charge IHT on existing pension pots is subject to a legal challenge? Surely, those of us who have been encouraged to save for retirement in the belief that the residue of our pension is already ring-fenced from IHT have a case? 

Yes, it could be said. I doubt it'd get very far, however.

As many have stated, the tax benefits of Pensions were put in place to allow people to live a more comfortable life in retirement, not as a way to reduce IHT.

Yorkie1

Albermarle said:

Otherwise yes the change will change behaviour/decisions. I have just been flicking through a Lamborghini brochure 

One has to ask ... 

What colour?! 

artyboy

Yorkie1 said:

Albermarle said:

Otherwise yes the change will change behaviour/decisions. I have just been flicking through a Lamborghini brochure 

One has to ask ... 

What colour?! 

I'd give red a wide berth...

MeteredOut

I can just about stretch to this one

https://www.lego.com/en-gb/product/lamborghini-countach-5000-quattrovalvole-10337

LHW99

SnowMan said:

LHW99 said:

I can see things getting messy if the PRs (or HMRC's IT, or the PA) makes an undetected error, leading to HMRC coming back, maybe many years later, and demanding an additional payment.

From various threads here, neither HMRC or PA's are error free in their calculations, and may well take decades to realise a mistake - and this proposal adds PRs into the equation.

Will only take one publicised case and the campaigners will be out.

The consultation sets out the position in relation to amendments after inheritance tax has been paid in 2.32.

Interestingly 12 months after the death of a member, their beneficiaries will become jointly liable with the pension scheme for further inheritance tax due on unused pension funds after death.

I can see many issues. Consider an estate where there are significant assets in the estate that aren't identified until long after the inheritance tax has been paid and estate administration has been completed. By then the pension scheme death benefits have been paid out after their inheritance tax share and any income tax. Now let's suppose that the beneficiary under the pension scheme is not a beneficiary under the will. And the beneficiary has spent all the pension paid out to them and has not a penny to their name. Further inheritance tax is due on the pension. What they seem to be suggesting in the consultation is the pension scheme would be liable for the pension share of the extra inheritance tax although they've done nothing wrong, because the pension beneficiary has no money for HMRC to go after. But when they say 'beneficiaries' do they mean beneficiaries of the pension or beneficiaries of the non-pensions, so would the beneficiaries of the rest of the estate become liable instead for the extra pension inheritance tax from their share of the extra assets, so they'd lose out instead because of the 'omission'. And if the pension scheme then sues the executor they could become liable. At the moment it isn't an issue because extra assets just means extra money to some/all of the beneficiaries net of extra inheritance tax.

From the pension scheme perspective they are going to be concerned about being liable in the 12 months after death, but also subsequently after 12 months for money they don't have and because of errors that were not caused by their own negligence. The pension scheme also has a strong vested interest in ensuring the pension/non-pension split of inheritance tax is right, because of the consequences to them of it being wrong. It's all very well for the consultation to say 'as PSAs [pension schemes administrators] are liable for the Inheritance Tax, if they are able to make the further Inheritance Tax payments or pass repayments onto the beneficiaries, HMRC will work with them to resolve the Inheritance Tax position' What if there are no funds left in the pension to make the additional pension inheritance tax payments?

It's a bit of an edge case of course, and 9 times out of 10 it all should work fine. But these are the sort of outlier scenarios they need to consider.

Can't help thinking it would be easier for the pension to fall out of trust, and just be added to the estate and dealt with according to the will. It's unlikely to cause more problems than those already caused by people wih complicated families passing on without an expression of wish / proper will.

Qyburn

PaulVickerstaff said:

Couldn’t it be said that the decision to charge IHT on existing pension pots is subject to a legal challenge? Surely, those of us who have been encouraged to save for retirement in the belief that the residue of our pension is already ring-fenced from IHT have a case? 

Encouraged by who, your financial advisor? I don't think I've ever seen any guidance from any outfit that wasn't heavily caveated s being based on current legislation which might be subject to change.

Albermarle

LHW99 said:

SnowMan said:

LHW99 said:

I can see things getting messy if the PRs (or HMRC's IT, or the PA) makes an undetected error, leading to HMRC coming back, maybe many years later, and demanding an additional payment.

From various threads here, neither HMRC or PA's are error free in their calculations, and may well take decades to realise a mistake - and this proposal adds PRs into the equation.

Will only take one publicised case and the campaigners will be out.

The consultation sets out the position in relation to amendments after inheritance tax has been paid in 2.32.

Interestingly 12 months after the death of a member, their beneficiaries will become jointly liable with the pension scheme for further inheritance tax due on unused pension funds after death.

I can see many issues. Consider an estate where there are significant assets in the estate that aren't identified until long after the inheritance tax has been paid and estate administration has been completed. By then the pension scheme death benefits have been paid out after their inheritance tax share and any income tax. Now let's suppose that the beneficiary under the pension scheme is not a beneficiary under the will. And the beneficiary has spent all the pension paid out to them and has not a penny to their name. Further inheritance tax is due on the pension. What they seem to be suggesting in the consultation is the pension scheme would be liable for the pension share of the extra inheritance tax although they've done nothing wrong, because the pension beneficiary has no money for HMRC to go after. But when they say 'beneficiaries' do they mean beneficiaries of the pension or beneficiaries of the non-pensions, so would the beneficiaries of the rest of the estate become liable instead for the extra pension inheritance tax from their share of the extra assets, so they'd lose out instead because of the 'omission'. And if the pension scheme then sues the executor they could become liable. At the moment it isn't an issue because extra assets just means extra money to some/all of the beneficiaries net of extra inheritance tax.

From the pension scheme perspective they are going to be concerned about being liable in the 12 months after death, but also subsequently after 12 months for money they don't have and because of errors that were not caused by their own negligence. The pension scheme also has a strong vested interest in ensuring the pension/non-pension split of inheritance tax is right, because of the consequences to them of it being wrong. It's all very well for the consultation to say 'as PSAs [pension schemes administrators] are liable for the Inheritance Tax, if they are able to make the further Inheritance Tax payments or pass repayments onto the beneficiaries, HMRC will work with them to resolve the Inheritance Tax position' What if there are no funds left in the pension to make the additional pension inheritance tax payments?

It's a bit of an edge case of course, and 9 times out of 10 it all should work fine. But these are the sort of outlier scenarios they need to consider.

Can't help thinking it would be easier for the pension to fall out of trust, and just be added to the estate and dealt with according to the will. It's unlikely to cause more problems than those already caused by people wih complicated families passing on without an expression of wish / proper will.

Then there would be the issue of the estate having assets that can be paid out to beneficiaries as straightforward cash, but for the pension part , the beneficiaries would have to somehow pay income tax on it.

Unless the income tax part was waived, but then would probably undo the whole point of the exercise, which is to bring the treasury more money.

RogerPensionGuy

Andy_L said:

CSL0183 said:

I can’t see how most won’t pay? 

It’s not hard to leave an estate worth over £325k with pension pot and house. 

because most estates are leaving something to a spouse, so no IHT, or to their kids after the 2nd death so get a £1m allowance 

Most estates may leave to a spouce on 1st passing, that would be 50% at most. 

2nd passing probably not leaving to a spouce.

Going back to 1st passing, there's plenty of older folk with no spouce nowadays. 

I'm sure the government have all the data and projections. 

Another dynamic, due to decades of insufficient house building, buying charges, selling charges, stamp duty, moving costs and younger people having to fill up savings & pensions with big % of pay, these people maybe won't have a house, so unfortunately their IHT will be 325 and not 500K like the old generations, again the government has all this data and projections. 

Lets face it, the UK will need to be a high taxed environment for 30 years minimum. 

Cus

artyboy said:

Yorkie1 said:

Albermarle said:

Otherwise yes the change will change behaviour/decisions. I have just been flicking through a Lamborghini brochure 

One has to ask ... 

What colour?! 

I'd give red a wide berth...

Red for Ferrari, yellow for Lamborghini..I thought this was common knowledge 😁