The Association of Consulting Actuaries (ACA) has called for major changes to inheritance tax rules, proposing a separate pension inheritance tax and arguing that the proposed six-month IHT deadline is “unworkable”.
In response to HMRC’s consultation on Inheritance Tax on pensions: liability, reporting and payment, the ACA welcomes the decision to extend implementation timelines. But it raised concerns about pension schemes being held to tight deadlines and facing penalties, even though they rely on others to provide the necessary details on time.
The ACA also stressed the importance of allowing pension administrators to handle small pots without excessive red tape or the fear of being held liable for unpaid inheritance tax later.
It proposes a standalone Pension Inheritance Tax (PIHT) regime to deal with challenges around timescales, arguing that it would simplify the system for HMRC, beneficiaries, advisers, and pension administrators alike.
ACA pensions taxation committee chair Kirsty Cotton says: “There needs to be clearer and better exemptions and processes for financial dependants and small pots.
“The proposed six-month deadline for paying the correct amount of inheritance tax (IHT) is unworkable for pension schemes. In practice, there are often material delays in death notifications where members left employment many years ago and not kept in active contact with their pension scheme. Trustees also need time to gather sufficient information to make appropriate discretionary decisions in what can be complex situations and where nominations are out of date.
“We have many practical concerns with the proposal that pension scheme administrators become responsible for paying a share of IHT determined by the Personal Representatives. Instead of attempting to integrate pension schemes into the IHT process, a simpler approach is required recognising that pension assets are fundamentally different from other financial assets.”
