Results of Government consultation re IHT on pension pots today

poseidon1

https://www.gov.uk/government/publications/reforming-inheritance-tax-unused-pension-funds-and-death-benefits/inheritance-tax-on-unused-pension-funds-and-death-benefits#general-description-of-the-measure

Key point of departure from original announcement, the liabilty has shifted from the pension scheme administrators across to PR/Executors.

poseidon1

An immediate thought which occurs, relates to those who have collected a variety of different DC pension pots over their working lives.

It will be even more  importance these are  collated into one (maybe two) DC pots/ SiPPs to relieve prospective executors of the hassle in tracking down disparate schemes, working out overall collective IHT and presumably approaching each scheme to make its contribution to any tax payable.

For the DIY Executor/PR an unwelcome additional administrative burden.

HappyHarry

This is going to get very messy. Going by the current number of posters on here with IHT queries, and assuming that these posters are more clued up than the general population, your average Personal Representative is going to struggle massively with the potential new responsibilities. 

Marcon

One can only hope the much-vaunted Pensions Dashboard is going to be up and running, although given that not all schemes are in scope, it won't necessarily do the job it was originally supposed to do.

You can just see a whole new industry springing up, with plenty of former CMCs spotting a golden opportunity...

EdSwippet

HappyHarry said:

This is going to get very messy. Going by the current number of posters on here with IHT queries, and assuming that these posters are more clued up than the general population, your average Personal Representative is going to struggle massively with the potential new responsibilities. 

Yup. Another case of the govt massively complicating tax and HMRC sloping shoulders in response.

Is there any mechanism for PRs to use money from the pension to pay the tax? If not, we may now be solidly into double-tax territory.

poseidon1

EdSwippet said:

HappyHarry said:

This is going to get very messy. Going by the current number of posters on here with IHT queries, and assuming that these posters are more clued up than the general population, your average Personal Representative is going to struggle massively with the potential new responsibilities. 

Yup. Another case of the govt massively complicating tax and HMRC sloping shoulders in response.

Is there any mechanism for PRs to use money from the pension to pay the tax? If not, we may now be solidly into double-tax territory.

To quote from the guidance:

' ......Pension scheme administrators will also have to set up and run internal IT systems to offer the Pensions Inheritance Tax Payment Scheme.  '

warrenb

Sounds like a case of the industry lobbying against any involvement and getting what they wanted.

EdSwippet

poseidon1 said:

To quote from the guidance:

' ......Pension scheme administrators will also have to set up and run internal IT systems to offer the Pensions Inheritance Tax Payment Scheme.  '

Thanks. Clearly this won't work with any non-UK pensions though. Unless there's something else in here, those seem under significant threat of double-tax; that is, full IHT on death and then full UK income tax on later withdrawals by beneficiaries.

I realise this is a niche problem, but it's one I and several people I know have.

leosayer

poseidon1 said:

EdSwippet said:

HappyHarry said:

This is going to get very messy. Going by the current number of posters on here with IHT queries, and assuming that these posters are more clued up than the general population, your average Personal Representative is going to struggle massively with the potential new responsibilities. 

Yup. Another case of the govt massively complicating tax and HMRC sloping shoulders in response.

Is there any mechanism for PRs to use money from the pension to pay the tax? If not, we may now be solidly into double-tax territory.

To quote from the guidance:

' ......Pension scheme administrators will also have to set up and run internal IT systems to offer the Pensions Inheritance Tax Payment Scheme.  '

That consultation outcome doc linked below has a few more details on this area.

https://www.gov.uk/government/consultations/inheritance-tax-on-pensions-liability-reporting-and-payment/outcome/inheritance-tax-on-pensions-liability-reporting-and-payment-summary-of-responses#:~:text=Government response,is discretionary or non-discretionary.

"A significant number of respondents advised that, if the Inheritance Tax position remained unclear at the 6-month mark, PSAs would make payments on account of 40% of the value of the remaining pension funds directly to HMRC to avoid incurring any late payment interest charges. HMRC and PRs would then be required to calculate and administer any repayments accordingly."

There is a lot of further into about how to pay the tax due on the pension component. In a nutshell, it seems (as you would expect) that...

....only IHT due from the pension component of the estate can be charged to the pension, as you would expect
....income tax is not due from IHT arising from the pension component of the estate

Sea_Shell

Just posted on the original thread on this subject (following the budget) before I saw this new thread.

More heaped on the shoulders of executors.

Albermarle

HappyHarry said:

This is going to get very messy. Going by the current number of posters on here with IHT queries, and assuming that these posters are more clued up than the general population, your average Personal Representative is going to struggle massively with the potential new responsibilities. 

Although the large majority of estates will still not be liable for IHT at all.
However you are right for those that are it will make life more complicated, if an unused pension pot is involved
I think I read in the link that 75% of estates with IHT liability already use appointed  agents to handle IHT,  rather than a lay executor handling it themselves. Maybe if there is a pension pot involved that % will go up.